Credit insurance guarantees a lender will be repaid if a borrower is unable to pay his or her debt due to, for example, death or disability. Although credit insurance is solely for the benefit of the lender, it is purchased and paid for by the borrower.
Business owners may be required to purchase credit insurance as a condition of borrowing the money.
Credit insurance is often confused with trade credit insurance, which businesses purchase to ensure they will receive money owed to them if their customers are unable to pay what they owe.
More about credit insurance
A borrower that buys credit insurance typically pays premiums based on the full amount of the loan. However, the proceeds of the insurance would cover only the outstanding balance. For example, if the outstanding balance on a $100,000 debt is $25,000, the policy would pay just that amount.