Final answer:
A Credit Life Policy is cancelled when the loan it is meant to cover is paid off or refinanced. Insurance premiums are the payments for insurance policies, and a borrower's credit rating determines the trust a bank has in their ability to repay a loan.
Step-by-step explanation:
A Credit Life Policy, which pays out upon the policyholder's death to cover the balance of a loan, will be cancelled if the loan is paid off or refinanced. This cancellation occurs because the policy's sole purpose is to cover the debt owed, and once the loan is no longer in existence, there is no further need for coverage. In terms of bank loans and insurance, the cost of an insurance policy is reflected in the insurance premium, which is the amount paid by the policyholder to keep the policy active. Premiums are determined based on risk factors and can influence a borrower's decision to purchase insurance, especially if rates are increased to cover high-risk individuals, which can deter those at low or medium risk from buying insurance.
In essence, the bank's confidence in a borrower's ability to repay a loan is reflected in the borrower's credit rating, which can impact the interest rates and terms of the loan. The credit rating is a measure of a borrower's financial reliability and history of repaying debts, which includes factors such as previous borrowing history and the promptness of paying back loans.