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Which of the following statements is correct about a credit disability policy?

Rationale

The insurer pays the installments to the creditor.

In a credit disability policy, the insurer is responsible for making the loan payments directly to the creditor in the event that the insured becomes disabled and is unable to make these payments themselves. This arrangement provides financial protection for the borrower by ensuring that their loan obligations are met during a period of disability.

A (If the insured repays a loan without becoming disabled, all premiums are refunded, except for a small fee.) YOUR ANSWER

This statement is incorrect. In a credit disability policy, premiums are typically not refunded if the insured does not become disabled. The purpose of the policy is to provide coverage in case of disability, not for repayment of premiums in the absence of disability.

B (A benefit is paid if the insured dies.) YOUR ANSWER

This statement is incorrect. A credit disability policy is specifically designed to cover loan payments in the event of the insured's disability, not in the case of death. Death benefits are typically covered by life insurance policies rather than credit disability insurance.

D (The insurer pays the installments to the borrower.) YOUR ANSWER

This statement is incorrect. In a credit disability policy, the insurer pays the loan installments directly to the creditor, not to the borrower. This ensures that the loan obligations are fulfilled even if the borrower is unable to make payments due to disability.

Conclusion

In a credit disability policy, the correct statement is that the insurer is responsible for paying the installments directly to the creditor in the event of the insured's disability. This arrangement provides financial protection for the borrower by ensuring that the loan payments are made, even if the borrower is unable to do so themselves due to a covered disability.

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