South Carolina Insurance Practice Exam

Decreasing term life insurance is often used to serve what purpose?

1. Funding a child's education

2. Providing coverage for a home mortgage

3. Building cash value

4. Universal life insurance

The correct answer is: Providing coverage for a home mortgage

Decreasing term life insurance is specifically designed to provide a death benefit that decreases over the term of the policy. This structure makes it particularly well-suited for certain financial obligations that diminish over time, such as a home mortgage. As the mortgage balance decreases with each payment made, the corresponding life insurance coverage also declines, which aligns with the need to cover the remaining mortgage in the event of the policyholder's death. This type of insurance ensures that beneficiaries can pay off the remaining mortgage debt without the financial burden of a mortgage left behind, making it a strategic choice for homeowners looking to protect their family’s financial future. In contrast, using insurance for funding a child's education is typically better suited for policies that do not have diminishing benefits since educational costs do not decrease over time. Additionally, cash value is not a feature of decreasing term life insurance; this type of policy generally does not accumulate cash value like whole or universal life insurance. Lastly, universal life insurance is an entirely different product that allows for flexible premiums and a cash value component, thus not being directly related to the purpose of decreasing term life insurance.