6.5.3 Credit Life Insurance
Credit life insurance applies to the relationship between debtor groups (those who owe) and creditor groups (those who loan). When you buy a car on a loan basis, you are the debtor and the finance company that is loaning you the funds to purchase the automobile is the creditor.
Credit life insurance is usually carried by entities such as banks and finance companies to ensure that if the debtor dies before a loan is repaid, the policy benefits will be used to settle the loan balance (collateralizing the loan). Credit life insurance may only be used on loans up to 15 years.
Usually, the creditor must meet minimum participant requirements to offer this type of insurance (typically 100 debtors per year, but individual states vary).
