Tennessee Insurance Practice Exam

What type of policy should F choose if they need life insurance with a changing death benefit?

1. Whole Life Policy

2. Decreasing Term Policy

3. Convertible Term Policy

4. Universal Life Policy

The correct answer is: Decreasing Term Policy

The most suitable type of policy for someone in need of life insurance with a changing death benefit is a decreasing term policy. This type of policy is specifically designed to provide coverage that decreases over time, typically aligned with financial obligations that diminish, such as a mortgage. As the insured individual pays down their loan, the death benefit accordingly reduces, which may reflect the decreasing financial responsibility of their beneficiaries. This structure is beneficial for individuals whose life insurance needs are linked to certain financial liabilities that decrease over time, thus allowing for cost-effective coverage. The premiums for a decreasing term policy are often lower than those of a whole life or universal life policy, making it an affordable option for temporary, specific coverage needs. In contrast, whole life policies offer a level death benefit and cash value accumulation, while universal life policies provide both a flexible premium structure and cash value; neither option allows for a decreasing benefit. Convertible term policies offer the ability to convert to a permanent policy but do not inherently provide a changing death benefit feature.