Maryland Life and Health Insurance License Practice Exam

What do decreasing term policies provide?

1. A fixed death benefit

2. A decreasing death benefit and level premiums

3. Increased premiums over time

4. An increasing death benefit

The correct answer is: A decreasing death benefit and level premiums

Decreasing term policies are specifically designed to provide a death benefit that declines over time, typically aligned with an individual's financial obligations, such as a mortgage or loan. This type of policy is often used to ensure that as debts are paid down, the life insurance coverage decreases accordingly. The correct choice, which states that decreasing term policies provide a decreasing death benefit while maintaining level premiums, reflects the essential characteristics of this insurance product. The premiums remain consistent throughout the policy's term, making it financially predictable for policyholders. This structure appeals to individuals who want to manage their financial responsibilities effectively as their debts decrease over time. In contrast, other options highlight features that do not represent decreasing term policies accurately. For instance, a fixed death benefit would imply that the coverage amount remains unchanged, which is not true of decreasing term policies. Similarly, increased premiums over time or an increasing death benefit would contradict the very nature of what decreasing term insurance is intended to offer. Thus, option B accurately captures the unique feature of decreasing term policies.