Question

Someone borrowed money at the bank to send his daughter to college. instead of purchasing credit life ins., he used existing life ins. policy to secure the debt. this is a:

Answer 1

An existing life insurance policy used as security for a loan is considered collateral, which guarantees loan repayment to the bank in the event the borrower cannot fulfill their obligations.

Step-by-step explanation:

Using an existing life insurance policy to secure a debt taken to send someone's daughter to college would be considered collateral for a loan. In financial capital markets, banks often require collateral, which can include property or equipment the bank can seize and sell if the loan is not repaid.

In this scenario, the life insurance policy acts as a safeguard for the bank, assuring that the loan will be paid even if the borrower is unable to do so due to unforeseen circumstances, hence it is not a high-risk, high-interest loan, a federal bailout, or a form of political capital.