New Jersey Life Insurance Exam Practice Question
Which of the following statements is TRUE about premium refunds resulting from the cancellation of a Credit Life policy?
Correct Answer: C
Rationale: Premium refunds from the cancellation of a Credit Life policy are classified as unearned premiums, meaning they represent the portion of the premium that was paid but not used for coverage. Therefore, these funds must be returned to the borrower, ensuring fairness in the transaction.
Option A is incorrect as premium refunds are not prohibited by law; they are a standard practice. Option B misrepresents the rules, as refunds are not contingent upon purchasing replacement coverage. Option D is also wrong; unearned premiums cannot be retained by the creditor as loan security, as they must be refunded to the borrower.
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