Question

Don just bought a new car. On the way home from the dealer, he had an accident and was disabled. Under the credit disability plan that he purchased at the time he picked up the car, the insurer will pay

A) a lump sum to pay off the car loan
B) benefits directly to the lender to cover Don's car payments while he is disabled
C) benefits to Don to meet his living expenses
D) benefits to cover Don's medical expenses

Answer 1

Credit disability insurance generally pays benefits directly to the lender to cover car payments while the policyholder, in this case Don, is disabled and unable to make payments due to their disability. It does not cover lump sum loan payments, living expenses, or medical expenses.

Step-by-step explanation:

The question pertains to a credit disability plan that Don purchased when he acquired his new car.

If Don is disabled due to an accident, this type of insurance typically pays out benefits directly to the lender to cover car payments during the time Don is unable to work and earn an income because of his disability.

The payments continue until Don is able to return to work or until the loan is paid off, depending on the terms of the policy.

It is important to note that credit disability insurance does not pay out a lump sum to pay off the car loan, neither does it provide benefits for Don's medical expenses or living expenses; those needs would be covered by health insurance, car insurance, and perhaps disability insurance, respectively.