Group credit life insurance is typically written as what type of policy?

Group credit life insurance is typically written as a decreasing term policy. This type of insurance is designed specifically for credit protection, where the coverage amount decreases over time in line with the outstanding balance of a borrower's loan or debt. The reason for this structure is to ensure that as the debt decreases, the amount of insurance coverage is still adequate to pay off the remaining balance in the event of the insured's death.

For example, if an individual takes out a loan, the amount owed on that loan will decrease as payments are made. Consequently, the coverage provided by the group credit life insurance policy decreases correspondingly, which aligns the insurance benefit with the actual debt obligation. This makes decreasing term insurance a cost-effective solution both for lenders and borrowers, as premiums are lower compared to whole life policies, and the coverage necessity is tailored to the specific loan amount.

In contrast, whole life policies provide permanent coverage that does not decrease over time, nor do they specifically tie coverage amounts to debt. Renewable policies allow the insured to extend coverage without proving insurability, but they do not fit the specific function of aligning with a decreasing debt.