New York State Life Insurance Exam Questions Practice Question
Insurance that is designed to pay the balance of a loan if the insured dies before the loan has been repaid in full is
Correct Answer: D
Rationale: Credit life insurance specifically addresses the situation where the insured's death occurs before a loan is fully repaid. It ensures that the outstanding balance is covered, relieving the financial burden from the borrower's beneficiaries.
Option A, life settlement, involves selling a life insurance policy for a lump sum, which does not directly relate to loan repayment. Options B and C, whole life and universal life, are types of permanent life insurance that provide a death benefit and cash value accumulation but are not tailored for loan protection. Thus, only credit life insurance directly fulfills the need for loan balance coverage upon death.
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