Tennessee Insurance Practice Exam

What is the maximum coverage amount for a group credit life policy linked to a borrower's loan?

1. The total amount of the loan

2. The insured's total loan value

3. The maximum death benefit allowed by law

4. The outstanding balance on the loan

The correct answer is: The insured's total loan value

In the context of group credit life insurance policies, the amount of coverage is tied directly to the borrower's loan. The correct option reflects that the insured’s total loan value is covered. This means that the insurance policy would provide a death benefit that correlates to the entire amount of the loan that the insured has taken, ensuring that if the borrower passes away, the loan will be fully paid off. This type of policy is designed specifically to protect lenders by using the death benefit to settle the borrower's outstanding obligations, hence eliminating the potential financial burden on the borrower's estate or dependents. Additionally, the remaining options do not accurately capture the focus of group credit life insurance. While the total amount of the loan and the outstanding balance may seem similar, they do not consider how credit life insurance is structured to specifically cover the borrower's total loan value at the time of their death. The maximum death benefit allowed by law is not applicable in this context as it does not represent the purpose of group credit life coverage, which is firmly centered on the loan amount itself.