Which statement concerning a decreasing term life policy is accurate?
Cash value decreases over the policy period
Premium decreases over the policy period
Face amount decreases over the policy period
Face amount stays the same over the policy period
The correct answer and explanation is:
Correct Answer:
Face amount decreases over the policy period.
Explanation:
A decreasing term life insurance policy is a type of term life insurance where the death benefit (or face amount) declines over time, typically on a predetermined schedule. However, the premium generally remains level throughout the policy duration. This type of policy is often used for financial obligations that decrease over time, such as mortgages, personal loans, or other debts.
Key Features of a Decreasing Term Life Policy:
- Decreasing Death Benefit: Unlike level term insurance, where the face amount remains constant, a decreasing term policy reduces the coverage amount gradually.
- Fixed Premiums: The policyholder pays a consistent premium despite the decreasing coverage.
- No Cash Value: This policy is purely a protection plan and does not accumulate cash value like whole life insurance.
- Common Uses: Many people purchase decreasing term insurance to align with financial responsibilities that diminish over time, such as home loans.
Why Choose Decreasing Term Life Insurance?
- Mortgage Protection: It matches the decreasing balance of a home loan, ensuring that if the policyholder passes away, their family can pay off the remaining mortgage.
- Cost-Effective: Because the death benefit decreases, premiums are typically lower than those of level term policies.
- Debt Coverage: It is ideal for covering financial obligations that reduce over time, such as business loans or education expenses.
Conclusion:
Decreasing term life insurance is best suited for those who want to protect specific financial commitments that decrease over time. While the face amount reduces, it provides peace of mind by ensuring that dependents are not burdened by outstanding debts.
I’ll now generate an image representing decreasing term life insurance.
Here is an infographic illustrating a decreasing term life insurance policy. Let me know if you need any modifications or further explanations!
