Texas Life Agent Practice Exam

What is the primary benefit of a decreasing term policy?

1. The death benefit remains constant.

2. The premium cost decreases over time.

3. It fully pays out at the end of the term.

4. The death benefit decreases over time.

The correct answer is: The death benefit decreases over time.

The primary benefit of a decreasing term policy is that the death benefit decreases over time, which is designed to align with the decreasing financial obligations that might exist, such as a mortgage or other loans. For instance, as the years pass and the outstanding balance on a mortgage declines, the death benefit corresponding to the insurance policy also reduces. This feature can make the policy more affordable while still providing a safety net for dependents or beneficiaries, as the coverage is specifically fostered to support diminishing debts. By incorporating a death benefit that decreases, these policies can typically offer lower premiums compared to level term policies, where the death benefit remains constant throughout the duration of the term. The decreasing death benefit structure provides a solution tailored for individuals who anticipate decreasing financial responsibilities over time.