A decreasing term policy is typically used to cover which of the following?

• A. An auto loan
• B. A mortgage loan
• C. A student loan
• D. A personal loan

Answer: (B)

Decreasing term life insurance is designed so the death benefit falls over time to match a debt that declines as it’s paid off. For a mortgage loan, the outstanding balance goes down each year as you make payments, so a policy that reduces its death benefit accordingly ensures that, if the insured dies, the remaining loan can be paid off and the family isn’t left with the mortgage debt. Premiums are usually level, and the policy term often aligns with the loan term, making this type of coverage a natural fit for a mortgage. While you could use decreasing term for other loans, mortgages are the most common pairing because of their long duration and large, decreasing balance.