Which type of insurance policy is designed to cover payment of a debt if the debtor dies?

Credit Life Insurance is specifically designed to pay off a debtor's outstanding loan balance in the event of their death. This type of policy provides a safety net for lenders, ensuring that they are repaid even if the borrower passes away. The coverage amount is typically equal to the amount owed on the debt, effectively protecting the debtor’s estate and ensuring that their financial obligations do not burden family members or survivors.

In contrast, Term Life Insurance provides coverage for a specified period, and if the insured dies during that term, a death benefit is paid. While it can serve similar functions in terms of financial protection, it does not specifically focus on covering debts like a credit life policy does. Whole Life and Universal Life Insurance are forms of permanent life insurance that build cash value over time and also do not specifically address debt cancellation upon death; instead, they are primarily intended for long-term financial planning and savings.

Therefore, Credit Life Insurance is the most suitable choice for covering debts in the event of a debtor's death, as it was expressly created for that purpose.