What Is A Credit Life Insurance Contract? 
Credit Life Insurance contracts are designed to protect the creditor and the borrower 's family from incurring a loss due to the death of the borrower . A life insurance policy is taken out on the borrower for the amount of the loan or credit extended . The named beneficiary is the creditor who extends the loan / credit . Should the borrower die before the loan is paid off the creditor is paid by the insurance policy and therefore also protects the family of the borrower from incurring the debt . Typically these policies are `` decreasing Term '' policies , which decrease in value as the loan is paid down . 