Tennessee Life Producer Practice Exam

What term is used for life insurance that provides coverage which decreases over time?

1. Level term insurance

2. Decreasing term insurance

3. Whole life insurance

4. Variable insurance

The correct answer is: Decreasing term insurance

Decreasing term insurance is the correct term for life insurance that provides coverage which decreases over time. This type of policy is structured so that the death benefit is highest at the beginning of the policy and gradually decreases to zero by the end of the term. This design is often used to align with specific financial obligations, such as the decreasing balance of a mortgage or other loans, where the insurance is intended to protect the beneficiaries against the loss of income or debt obligations as they decline. Level term insurance, on the other hand, maintains a constant death benefit throughout the life of the policy. Whole life insurance provides permanent coverage and includes a cash value component, which also does not decrease. Variable insurance involves investment options and has a death benefit that can fluctuate based on the performance of these investments but does not follow a predetermined decreasing structure like decreasing term insurance does.