Vermont Life and Health Practice Exam 2025 - Free Life and Health Practice Questions and Study Guide

In a credit life insurance policy, the death proceeds are paid to the lender. This type of insurance is specifically designed to pay off a borrower's debt in the event of their death, ensuring that the outstanding loan balance is settled. By directing the benefits to the lender, the policy protects the financial institution from potential losses associated with the borrower's inability to repay the loan due to death.

This mechanism also serves a dual purpose. It provides peace of mind to the borrower, knowing that their family will not inherit the debt, while simultaneously safeguarding the lender's investment. The lender is the designated beneficiary because they have a direct financial interest in the borrower's life and repayment capability.

In this scenario, options such as the policyowner's family, the estate of the policyowner, or the insurance company are less relevant as they do not align with the specific function and intention of credit life insurance, which focuses on debt repayment to the lender rather than providing general financial support to dependents or heirs.