Massachusetts Life Producer Practice Exam

Which statement concerning group credit life insurance is true?

1. The death benefit is paid to the beneficiaries.

2. The face amount is based on the outstanding loan balance.

3. It covers the insured for the entirety of their life.

4. It guarantees automatic renewals without premium payments.

The correct answer is: The face amount is based on the outstanding loan balance.

Group credit life insurance is designed specifically to pay off outstanding debts, such as loans, in the event of the borrower’s death. The critical element of this type of insurance is that the face amount of the policy is directly linked to the outstanding balance of the loan at the time of death. This ensures that the insurance benefit is used to clear the debt, protecting both the lender and the borrower's estate from the burden of unpaid loans. Understanding this structure highlights why the claim that the face amount is based on the outstanding loan balance is accurate. In contrast, group credit life insurance does not pay benefits directly to beneficiaries, generally does not offer lifelong coverage, and does not guarantee renewals without premium payments, as these attributes are not characteristic of this insurance type.