UK: A decreasing term insurance to cover the outstanding debt under hire purchase and credit sale agreements. Cover is provided under a collective policy to the creditor, e.g. finance company, to facilitate repayment on the death of any hirer or debtor. Arrears are not covered. Limits are placed on the age attained (e.g. 60 or 65) of any hirer or debtor and the length of the finance agreement (e.g. three years). Premiums are based on the average outstanding debt in accordance with returns supplied by the assured.
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Insurance issued to a creditor (lender) to cover the life of a debtor (borrower) for an outstanding loan.
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This type of life insurance pays the balance of a loan in the event the borrower dies before the loan is repaid. There are two common ways to purchase credit life insurance. One way is to purchase the coverage from the lender. This is normally a group life insurance policy with a flat rate per $1,000 borrowed regardless of age or health. Coverage decreases as the loan balance decreases. The lender is the beneficiary and upon the death of the insured the loan is repaid and there is no money left over.Alternatively, a borrower can purchase a decreasing term insurance policy. This is a term insurance policy for a fixed term (for example, 30 years to cover a mortgage) and coverage decreases each year at the same rate a mortgage at a certain interest rate would decrease. The borrower may name the lender as primary beneficiary but can name anyone. If there is more money from the death benefit than is owed the lender, the balance goes to the contingent beneficiary.Some lenders may add credit disability to a credit life policy. This coverage pays the insured’s regularly scheduled loan payments for some specified time period such as 1 or 2 years.
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MEDICAL,USA: Type of decreasing term insurance calculated to pay the balance due on a loan, installment purchase, or other obligation, in case the borrower dies before the loan is repaid. Another form is credit group life insurance for insuring lives of a group of persons who are in debt to a creditor.