Life License Qualification Program (LLQP) Practice Exam

Which type of life insurance policy provides coverage for a limited amount of time with a changing death benefit?

1. Level term policy

2. Whole life policy

3. Limited-pay policy

4. Decreasing term policy

The correct answer is: Decreasing term policy

The correct answer is a decreasing term policy. This type of life insurance is specifically designed to provide coverage for a set period, typically in correlation with financial obligations, such as a mortgage or personal loan. The death benefit paid out decreases over time, which aligns with the diminishing need for coverage related to those obligations. For example, if a borrower holds a 20-year mortgage, a decreasing term policy can match the balance that decreases over time, ensuring that the policyholder's beneficiaries receive a benefit proportional to the debt's decline. In contrast, a level term policy guarantees a consistent death benefit throughout the policy's term and does not change over time. Whole life policies offer permanent coverage with a guaranteed death benefit and a cash value component, thus not aligning with the idea of a limited time frame. Limited-pay policies require premium payments for a shorter duration while providing lifelong coverage, maintaining a level death benefit throughout the insured's life instead of decreasing. Each of these options serves distinct purposes, making decreasing term policies the fitting choice for temporary coverage with a variable death benefit.