Julie has a $100,000 30-year mortgage. Which life insurance type is designed to pay off the loan balance if she dies within the 30-year period?

• A. Whole life insurance
• B. Decreasing Term Insurance
• C. Level term insurance
• D. Mortgage protection policy

Answer: (B)

A mortgage loan balance falls over time as payments are made, so the ideal life insurance to ensure the debt is covered if you die during the term is one whose death benefit shrinks in line with the loan. Decreasing term life insurance does exactly that: the death benefit starts high (enough to cover the mortgage upfront) and declines over the years as the loan balance declines. If Julie dies at any point within the 30-year period, the payout will be enough to pay off the remaining mortgage balance, preventing the loan from becoming a financial burden on her heirs. The policy stays inexpensive because the benefit is tied to the loan balance and reduces over time.

Compared with whole life or level term, those options provide a constant death benefit or a cash value component that isn’t aligned with a mortgage’s declining balance, so they’re not as specifically tailored to guarantee the loan is paid off if death occurs during the term. Mortgage protection policies are typically associated with this same idea, but the form that directly mirrors the loan balance over time is the decreasing-term approach.