Massachusetts Life Producer Practice Exam

Who typically receives the death proceeds from a credit life insurance policy?

1. The policyowner's estate.

2. The spouse of the policyowner.

3. The lender.

4. The insurance company.

The correct answer is: The lender.

In a credit life insurance policy, the primary purpose is to pay off a borrower’s outstanding debt in the event of their death. This type of insurance is often taken out in connection with loans, such as mortgages or auto loans, and is specifically designed to protect the lender's financial interest. Therefore, the death proceeds from a credit life insurance policy are typically directed to the lender. The rationale behind this structure is to ensure that if the borrower passes away, the loan obligation is fulfilled, thereby relieving the borrower's estate or family from having to deal with the debt. This mechanism benefits both the lender, who receives the payment, and the borrower's family, who would otherwise face the burden of that debt. While the policyowner's estate, spouse, and insurance company can be involved in other types of insurance arrangements, their roles do not apply in the context of credit life insurance, where the lender is the direct beneficiary of the death benefit.