State RegulationsNJ specificDifficulty 1/5
In a credit life insurance arrangement connected to a consumer loan, who is the insured whose death triggers the policy benefit?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
The insured under credit life insurance is the borrower — the person who owes the debt. The entire design of the coverage rests on the borrower's life: if the borrower dies, the loan balance is paid. The lender has an insurable interest in the borrower's life because the lender stands to lose the unpaid balance, which is why the lender is the beneficiary while the borrower is the insured. In New Jersey, this creditor-debtor insurance structure operates under the supervision of the New Jersey Department of Banking and Insurance.
Why the other options are wrong
- A) The lender's officers are not exposed to the borrower's death; the lender's interest is in the unpaid debt, not in any officer's life.
- B) The insurer's underwriter works for the insurance company and is never the insured under the coverage it evaluates.
- C) The loan officer facilitated the transaction but owes nothing on the loan; the debtor's life is the one insured.
Memory hook
The borrower's life is the insured risk; the lender merely holds the claim ticket.