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Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor. Credit life is usually written as decreasing term insurance, and it may be written as an individual policy or as a group plan. When written as a group policy, the creditor is the owner of the master policy, and each debtor receives a certificate of insurance.
The creditor is the owner and the beneficiary of the policy although the premiums are generally paid by the borrower (or the debtor). Credit life insurance cannot pay out more than the balance of the debt, so that there is no financial incentive for the death of the insured. The creditors may require the debtor to have life insurance; they cannot, however, require that the debtor buys insurance from a specific insurer.
Credit life insurance cannot pay out more than the balance of the debt.