Florida 2-15 Life, Health and Variable Annuity AgentGeneral Knowledge of Life InsuranceEasy
A client is looking for a life insurance policy that will cover their mortgage, which has a decreasing balance over 30 years. They want the most affordable option that will provide sufficient coverage for the outstanding loan amount at any given time. Which type of life insurance policy is best suited for this need?
- AWhole Life Insurance
- BDecreasing Term Insurance
- CLevel Term Insurance
- DEndowment Policy
Show answer & explanationAnswer & explanation
Correct answer: B. Decreasing Term Insurance
Decreasing Term insurance is specifically designed to match a decreasing financial obligation, such as a mortgage. The death benefit decreases over the policy term, while the premium typically remains level, making it the most affordable option for this specific need.
Why the other options are wrong
- A. Whole life is permanent and has a level death benefit and higher premiums, not ideal for a decreasing debt.
- C. Level term has a constant death benefit, making it more coverage than needed as the mortgage decreases, and thus more expensive.
- D. An endowment policy pays out at the end of the term or upon death, but its primary purpose and cost structure are not aligned with decreasing debt coverage.
Decreasing Term Life Insurance
A type of term life insurance where the death benefit gradually decreases over the policy's term, typically used to cover financial obligations that also decrease over time, such as a mortgage.
- Death benefit decreases over time.
- Premium usually remains level.
- Ideal for covering decreasing debts (e.g., mortgages).
- Most affordable type of term insurance for this purpose.
Memory trick: Mortgage DOWN, Term DOWN.