Credit life insurance is a life insurance policy designed to pay off a borrower’s debt. The sum insured under a credit life insurance policy decreases proportionately with an outstanding loan amount as the loan is paid off over time until both reach zero value.

Unlike other types of life insurances, it doesn’t pay out to the policyholder’s chosen beneficiaries. Instead, the policyholder’s creditors receive the value (outstanding loan amount) of a credit life insurance policy in the unlikely event of any of the below to the borrower.