Life Insurance Policies, Provisions, Options and Riders Practice Test

Question: 1 / 400

When a decreasing term policy is purchased, it includes a decreasing death benefit and what type of premiums?

Increasing premiums

Level premiums

When a decreasing term policy is purchased, it features a decreasing death benefit over the life of the policy, while the premiums remain level. This structure allows the policyholder to have fixed premium payments throughout the duration of the term, enabling budget predictability. The rationale behind this design is that as the death benefit decreases, the risk to the insurer also diminishes. Consequently, the premiums do not have to increase, ensuring they remain the same despite the declining benefit.

In other types of policies or situations, such as increasing term policies, premiums might change in a different manner, which would not apply here. This is why it's important to recognize that in a decreasing term policy, the premium structure is distinctly level, providing stability and predictability for the policyholder.

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Decreasing premiums

Variable premiums

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