It is a credit life insurance policy that repays on the death or permanent disability of the borrower the outstanding debt under a particular financing arrangement. The policy is purchased by a borrower. By having this policy, the borrower can ensure that he will not leaving behind debt for his loved ones to handle in the event of his untimely death.

The policy also protects the lender from loss that may result from the borrower’s death or disablement. It is a policy that money lending institutions must have.