New York Child Abuse Identification and Reporting Practice Exam

What is a defining feature of a decreasing term life insurance policy?

1. The face amount increases over time

2. The face amount remains constant

3. The face amount reaches zero at policy expiration

4. The face amount is adjustable based on premiums

The correct answer is: The face amount reaches zero at policy expiration

A decreasing term life insurance policy is characterized primarily by a face amount that declines over the duration of the policy until it reaches zero at the end of the term. This setup often aligns with financial needs that decrease over time, such as a mortgage or other debts that are being paid down. As the obligation decreases, so does the coverage amount, making it a cost-effective solution for individuals who want to ensure their financial responsibilities are addressed during their lifetimes without the need for a large death benefit at the end of the policy. The nature of this type of policy serves specific needs, such as covering debts that diminish as they are paid off. This distinguishes it from other types of life insurance where the face amount either stays constant or increases, which is not the case with decreasing term insurance.