A life insurance policy designed to reduce the death benefit over time to align with a decreasing loan balance is called

• A. Level term insurance
• B. Increasing term insurance
• C. Decreasing Term Insurance
• D. Whole life insurance

Answer: (C)

Decreasing term life insurance is a term policy in which the death benefit declines over time. This design matches the way a loan balance typically falls as payments are made, so the protection provided by the policy is aligned with the amount still owed. If the insured dies, the payout would be enough to pay off the remaining loan, not the original loan amount, which helps avoid paying for coverage that would be wasted if the debt shrinks.

This is different from level term, where the death benefit stays the same for the entire term; and from increasing term, where the death benefit rises over time. It’s also not whole life, which provides permanent coverage with a cash value component. The described policy—death benefit that reduces to track a decreasing loan balance—is the hallmark of decreasing term insurance.