Which type of life insurance is designed to cover a loan balance in case the insured dies before repayment?

Credit life insurance is specifically designed to pay off a borrower's outstanding debt, such as a loan or a mortgage, in the event of their death before the debt is fully repaid. This type of policy ensures that the financial obligation does not fall on the borrower's dependents or estate, providing a safety net that protects both the lender and the borrower's family.

Credit life insurance typically decreases in value over time, in tandem with the decline in the loan balance, which is why it is closely aligned with the needs of borrowers. The premiums for credit life insurance are often included in the loan agreement, making it convenient for individuals securing loans.

In contrast, whole life, term life, and universal life insurance policies serve broader purposes related to life coverage and investment components rather than specifically addressing loan repayment. Whole life insurance provides lifelong coverage with a cash value accumulation, term life insurance offers coverage for a specified period, and universal life insurance combines flexible premiums with adjustable death benefits. Thus, these options do not directly cater to the singular need of covering a loan balance in the event of the borrower's death.