Tennessee Insurance Practice Exam

What distinguishes a decreasing term policy?

1. The death benefit remains constant

2. The premiums increase over time

3. The death benefit decreases over time

4. The policy is not renewable

The correct answer is: The death benefit decreases over time

A decreasing term policy is characterized by a death benefit that diminishes over the life of the policy. This type of insurance is typically designed to cover specific financial obligations that may decrease over time, such as a mortgage balance or other loans. As the insured individual makes payments toward the debt, the amount they still owe decreases, and correspondingly, the death benefit of the policy is structured to align with that decreasing obligation. The key feature of a decreasing term policy is that while the premium remains level throughout the term of the policy, the actual benefit paid out upon the death of the insured decreases according to a specified schedule. This design makes it particularly beneficial for individuals looking for coverage that matches their decreasing financial liabilities.