Tennessee Insurance Practice Exam

What is the main benefit of a Decreasing Term Rider in an insurance policy?

1. Increases cash value over time

2. Provides level premiums for life

3. Reduces coverage amount as debts decrease

4. Guarantees renewable option for life

The correct answer is: Reduces coverage amount as debts decrease

The main benefit of a Decreasing Term Rider in an insurance policy is that it reduces the coverage amount as debts decrease. This type of rider is often used in conjunction with loans or mortgages, where the outstanding balance decreases over time as payments are made. The decreasing term rider is designed to match the reduction in the insured debt, ensuring that the death benefit aligns with the liability that remains. This means that as the need for coverage decreases, so too does the amount of insurance, which can result in lower premiums compared to a level term policy. In situations where a borrower might want to ensure that their debts are covered in case of their untimely death, a decreasing term rider can provide peace of mind by ensuring that the death benefit will cover any outstanding amounts owed, such as a mortgage, thereby protecting the beneficiaries from having to assume that debt.