Life License Qualification Program (LLQP) Practice Exam

How is the death benefit of a decreasing term life insurance policy structured?

1. It remains constant throughout the term

2. It decreases over time

3. It increases over time

4. It is based on the insured's age

The correct answer is: It decreases over time

The death benefit of a decreasing term life insurance policy is structured to decrease over time. This design reflects the specific purpose of this type of policy, which is often associated with covering liabilities that diminish over time, such as a mortgage or other loans. As the insured's financial obligations decrease, so too does the benefit paid out upon the insured's death. For example, if an individual has a mortgage, typically, the outstanding balance decreases as principal payments are made. A decreasing term policy aligns with this scenario by reducing its death benefit in correlation with the declining balance of the mortgage. This makes it a cost-effective option for individuals who want to ensure their debts are covered without paying for a death benefit that remains constant or increases over the term.