Who is the beneficiary in a Credit Life Insurance policy?

In a Credit Life Insurance policy, the beneficiary is typically the creditor owed money by a debtor. This type of insurance is designed to pay off the outstanding debts of the insured (the debtor) in the event of their death. By naming the creditor as the beneficiary, the life insurance proceeds automatically go toward settling the outstanding loan or debt, thus protecting the lender's interests. This arrangement ensures that the debt does not pass on to the debtor's estate or family, providing them with financial relief during a difficult time.

While the debtor is the one who purchases the policy, they are not the beneficiary; instead, they are the person whose life is insured. The insured cannot also be the beneficiary in this context, as the purpose of the policy is to cover the debts owed to the creditor, not to provide a benefit to the insured themselves. Understanding this structure is crucial for grasping how Credit Life Insurance functions and its purpose in the financial ecosystem.