Utah Life Producer Practice Exam

Which statement about credit life insurance is incorrect?

1. Benefits are paid to the borrower's beneficiary

2. It is intended to pay off a debt upon the borrower's death

3. Coverage amount typically equals the debt amount

4. Premiums are often paid by the borrower

The correct answer is: Benefits are paid to the borrower's beneficiary

The statement that benefits are paid to the borrower's beneficiary is incorrect because, in credit life insurance, the policy is designed specifically to pay off a debt in the event of the borrower's death rather than providing a benefit to a beneficiary. The insurance proceeds go directly to the creditor to satisfy the outstanding balance of the loan or debt, which means it does not provide a death benefit to the borrower's designated beneficiary. This structure ensures that the debt is cleared and the borrower's estate or beneficiaries are not left with the burden of the debt. In contrast, the other statements are true. Credit life insurance indeed serves the purpose of paying off a debt upon the death of the borrower, helping to protect the borrower's family from financial hardship associated with unpaid debts. The coverage amount is typically set to match the debt amount, ensuring that the total outstanding loan is covered by the policy. Furthermore, the borrower usually pays the premiums for this type of insurance, as it is often offered in conjunction with a loan agreement.