MICHIGAN CREDIT INSURANCE STUDY GUIDE 2025/2026
QUESTIONS WITH ANSWERS TAGGED A+
✔✔PURE RISK - ✔✔the only kind of risk that IS insurable
✔✔Credit Life Insurance - ✔✔pays off the credit if the insured borrower or co-borrower
dies
✔✔Credit Disability Insurance - ✔✔provides a monthly benefit equal to the monthly
payment obligation if the primary borrower becomes disabled, for the duration of the
disability, or until the end of the loan term
✔✔Involuntary Unemployment Insurance - ✔✔If the insured becomes involuntarily
unemployed, the minimum monthly payment is made during the period of
unemployment. Insured events include layoff, firing, lockout, and strike.
✔✔Credit Property Insurance - ✔✔insurance writing in connection with a credit
transaction where the collateral is NOT a motor vehicle, mobile home, or real estate
AND that (1) covers perils to the goods purchased through a credit transaction or used
as collateral and that concerns a creditors interest in the purchased goods or pledged
collateral either in whole or in part; or (2) covers perils to goods purchased in
connection with an open-end credit transaction
✔✔Truncated Coverage - ✔✔Under this plan, the insurance is only in effect for some
initial portion of the loan term. once this portion has elapsed, ins coverage stops. can be
used for life and/or accident and health insurance
✔✔Critical-period A&H (disability) Insurance - ✔✔not a common form of insurance, but
used occasionally. similar to truncated, except that borrower has a floating period of
covg that can be used at any point during the term of the loan.
✔✔Group Credit Life Insurance - ✔✔a type of life insurance where a master policy is
issued to the lending institution and the individual borrowers receive certificates for their
coverage.
✔✔Individual Credit Life Insurance - ✔✔a type of insurance where the policies are
issued directly to the borrowers on an individual basis
✔✔Debt cancellation insurance - ✔✔similar benefits to credit insurance. issued by
lender, rather than ins comp. usually claimed as not being insurance.
✔✔Decreasing Term - ✔✔one of two types of contracts that provide the terms of ins
coverage. amount of ins declines as the balance of the installment loan decreases.
, ✔✔Level Term - ✔✔one of two types of contracts that provide the terms of ins
coverage. A life policy for the entire period of loan. the face amount paid out is always
equal to initial amount of loan. usually sold with loans that are NOT installment loans.
✔✔Good Health Clause - ✔✔this is the insured's attest to their current health requiring
that they declare whether or not a physician has been consulted or hospital overnight
stay has occurred within the past twelve months for any condition listed on the credit
insurance application
✔✔suicide clause - ✔✔this states that if the borrower commits suicide within a
stipulated period of time (typically one or two years) from the inception of coverage the
insurer normally denies a claim for the benefits. the beneficiary would receive a refund
of the insurance premium however.
✔✔Consumer Credit Protection Act - ✔✔this requires that customers be informed of all
direct and indirect loan costs, including credit insurance costs. also customer is required
to sign and date a disclosure statement indicating a desire for the insurance
✔✔Fair Credit Reporting Act - ✔✔this sets forth the procedures for the collection and
disclosure of information obtained on consumers through investigation and credit
reports; it seeks to ensure fairness with regard to confidentiality, accuracy, and
disclosure.
✔✔Uniform Consumer Credit Code - ✔✔backed by the National Association of
Insurance Commissioners on Uniform State Laws, this code among other things, is
aimed at fully informing consumers about credit insurance costs and options
✔✔Unilateral - ✔✔ONE party legally bound
✔✔Adhesion - ✔✔contract prepared by one and accepted or rejected by the other
✔✔Aleatory - ✔✔the outcome is affected by chance and the number of dollars given up
by the contracting parties will be unequal
✔✔Conditional - ✔✔a claim will not be paid unless the conditions of the policy are met
✔✔NAIC Model Act and Regulation - ✔✔promulgated by the National Association of
Insurance Commissioners, which, among other things, permits state insurance
commissioners to disapprove credit insurance policies if the benefits provided to
consumers are not reasonable in relation to the premium charged
✔✔Stock insurers - ✔✔stock insurance company has purpose of making profit for
stockholders
QUESTIONS WITH ANSWERS TAGGED A+
✔✔PURE RISK - ✔✔the only kind of risk that IS insurable
✔✔Credit Life Insurance - ✔✔pays off the credit if the insured borrower or co-borrower
dies
✔✔Credit Disability Insurance - ✔✔provides a monthly benefit equal to the monthly
payment obligation if the primary borrower becomes disabled, for the duration of the
disability, or until the end of the loan term
✔✔Involuntary Unemployment Insurance - ✔✔If the insured becomes involuntarily
unemployed, the minimum monthly payment is made during the period of
unemployment. Insured events include layoff, firing, lockout, and strike.
✔✔Credit Property Insurance - ✔✔insurance writing in connection with a credit
transaction where the collateral is NOT a motor vehicle, mobile home, or real estate
AND that (1) covers perils to the goods purchased through a credit transaction or used
as collateral and that concerns a creditors interest in the purchased goods or pledged
collateral either in whole or in part; or (2) covers perils to goods purchased in
connection with an open-end credit transaction
✔✔Truncated Coverage - ✔✔Under this plan, the insurance is only in effect for some
initial portion of the loan term. once this portion has elapsed, ins coverage stops. can be
used for life and/or accident and health insurance
✔✔Critical-period A&H (disability) Insurance - ✔✔not a common form of insurance, but
used occasionally. similar to truncated, except that borrower has a floating period of
covg that can be used at any point during the term of the loan.
✔✔Group Credit Life Insurance - ✔✔a type of life insurance where a master policy is
issued to the lending institution and the individual borrowers receive certificates for their
coverage.
✔✔Individual Credit Life Insurance - ✔✔a type of insurance where the policies are
issued directly to the borrowers on an individual basis
✔✔Debt cancellation insurance - ✔✔similar benefits to credit insurance. issued by
lender, rather than ins comp. usually claimed as not being insurance.
✔✔Decreasing Term - ✔✔one of two types of contracts that provide the terms of ins
coverage. amount of ins declines as the balance of the installment loan decreases.
, ✔✔Level Term - ✔✔one of two types of contracts that provide the terms of ins
coverage. A life policy for the entire period of loan. the face amount paid out is always
equal to initial amount of loan. usually sold with loans that are NOT installment loans.
✔✔Good Health Clause - ✔✔this is the insured's attest to their current health requiring
that they declare whether or not a physician has been consulted or hospital overnight
stay has occurred within the past twelve months for any condition listed on the credit
insurance application
✔✔suicide clause - ✔✔this states that if the borrower commits suicide within a
stipulated period of time (typically one or two years) from the inception of coverage the
insurer normally denies a claim for the benefits. the beneficiary would receive a refund
of the insurance premium however.
✔✔Consumer Credit Protection Act - ✔✔this requires that customers be informed of all
direct and indirect loan costs, including credit insurance costs. also customer is required
to sign and date a disclosure statement indicating a desire for the insurance
✔✔Fair Credit Reporting Act - ✔✔this sets forth the procedures for the collection and
disclosure of information obtained on consumers through investigation and credit
reports; it seeks to ensure fairness with regard to confidentiality, accuracy, and
disclosure.
✔✔Uniform Consumer Credit Code - ✔✔backed by the National Association of
Insurance Commissioners on Uniform State Laws, this code among other things, is
aimed at fully informing consumers about credit insurance costs and options
✔✔Unilateral - ✔✔ONE party legally bound
✔✔Adhesion - ✔✔contract prepared by one and accepted or rejected by the other
✔✔Aleatory - ✔✔the outcome is affected by chance and the number of dollars given up
by the contracting parties will be unequal
✔✔Conditional - ✔✔a claim will not be paid unless the conditions of the policy are met
✔✔NAIC Model Act and Regulation - ✔✔promulgated by the National Association of
Insurance Commissioners, which, among other things, permits state insurance
commissioners to disapprove credit insurance policies if the benefits provided to
consumers are not reasonable in relation to the premium charged
✔✔Stock insurers - ✔✔stock insurance company has purpose of making profit for
stockholders
