Which type of life insurance is designed to pay off a loan if the insured dies before it is repaid?

Credit life insurance is specifically designed to pay off a loan if the insured dies before the debt is settled. This type of insurance typically provides coverage equal to the outstanding balance of the loan, ensuring that the lender is compensated in the event of the borrower's death. It is often purchased in connection with a loan, such as a mortgage or an auto loan, and the coverage ceases once the loan is fully paid.

While term life, whole life, and universal life insurance are all types of life insurance policies, they do not serve the specific function that credit life insurance provides. Term life insurance offers coverage for a predetermined period, whole life insurance provides lifelong coverage with a cash value component, and universal life offers flexible premiums and benefits. However, none of these are tailored to specifically cover the outstanding amount of a loan in the event of the borrower's death, which is the main purpose of credit life insurance.