In a decreasing term insurance policy, which component decreases over time?

In a decreasing term insurance policy, which component decreases over time?

• A. Premium amount
• B. Face amount
• C. Cash value
• D. Death benefit

Answer: (B)

In a decreasing term insurance policy, the face amount is the component that decreases over time. This type of insurance is designed to provide a death benefit that reduces in value periodically, typically in correlation with a debt or financial obligation, such as a mortgage. As the insured individual pays down their mortgage, for example, the face amount of the policy also decreases, aligning the coverage with the decreasing financial risk. The decreasing nature of the face amount is strategically important because it allows policyholders to have coverage that matches their diminishing financial responsibility while potentially reducing premium costs compared to level term insurance. In contrast, the premiums generally remain constant throughout the term of the policy, so this aspect does not decrease. Additionally, typical term policies, including decreasing term, do not accumulate cash value, making cash value another component that does not apply in this context. The death benefit in a decreasing term policy refers to the amount paid to beneficiaries upon the insured's death, which also decreases in tandem with the face amount. Thus, in this type of insurance product, it is specifically the face amount that diminishes over time.

In a decreasing term insurance policy, the face amount is the component that decreases over time. This type of insurance is designed to provide a death benefit that reduces in value periodically, typically in correlation with a debt or financial obligation, such as a mortgage. As the insured individual pays down their mortgage, for example, the face amount of the policy also decreases, aligning the coverage with the decreasing financial risk.

The decreasing nature of the face amount is strategically important because it allows policyholders to have coverage that matches their diminishing financial responsibility while potentially reducing premium costs compared to level term insurance. In contrast, the premiums generally remain constant throughout the term of the policy, so this aspect does not decrease. Additionally, typical term policies, including decreasing term, do not accumulate cash value, making cash value another component that does not apply in this context. The death benefit in a decreasing term policy refers to the amount paid to beneficiaries upon the insured's death, which also decreases in tandem with the face amount. Thus, in this type of insurance product, it is specifically the face amount that diminishes over time.