What type of insurance covers the repayment of debts in the event of the borrower's death or disability?

Creditor insurance is designed specifically to cover the repayment of debts if the borrower passes away or becomes disabled. This type of insurance ensures that the outstanding mortgage balance and sometimes other debts are taken care of, relieving the borrower's dependents from financial burdens in the unfortunate event of death or serious illness. It functions as a safety net, ensuring that lenders are repaid, even if the borrower cannot fulfill their financial obligations due to unforeseen circumstances.

While life insurance provides a payout upon the death of the insured, which might help beneficiaries cover debts among other expenses, creditor insurance is more targeted and directly linked to the repayment of specific debts like mortgages. This direct connection makes creditor insurance a more specialized product for those concerned primarily about debt repayment in these situations. Other types of insurance, such as property insurance or mortgage default insurance, serve different purposes altogether, focusing on protecting the physical asset or covering the lender against the risk of loan defaults rather than addressing the borrower's personal circumstances directly.