Which of the following is correct regarding credit life insurance?

• A. Credit life insurance provides coverage for the borrower's property in case of theft.
• B. Credit life insurance pays off the outstanding loan balance if the borrower dies before the loan is repaid.
• C. Credit life insurance is required by law for all personal loans.
• D. Credit life insurance pays regular income to the borrower's family after the borrower's death.

Answer: (B)

Verified step by step guidance

1. Understand the concept of credit life insurance: Credit life insurance is a type of insurance policy designed to pay off a borrower's outstanding loan balance in the event of their death before the loan is fully repaid.
2. Analyze the first option: 'Credit life insurance provides coverage for the borrower's property in case of theft.' This is incorrect because credit life insurance does not cover property; it specifically addresses loan repayment upon the borrower's death.
3. Evaluate the second option: 'Credit life insurance pays off the outstanding loan balance if the borrower dies before the loan is repaid.' This is correct because it aligns with the purpose of credit life insurance, which is to protect lenders and borrowers by ensuring the loan is repaid in such circumstances.
4. Review the third option: 'Credit life insurance is required by law for all personal loans.' This is incorrect because credit life insurance is not legally mandated; it is typically optional and offered as an additional service by lenders.
5. Assess the fourth option: 'Credit life insurance pays regular income to the borrower's family after the borrower's death.' This is incorrect because credit life insurance does not provide income to the family; its sole purpose is to pay off the loan balance.