PSI Ohio Insurance Practice Exam

Group credit life insurance is primarily offered as what type of policy?

1. Level term

2. Increasing term

3. Decreasing term

4. Universal life

The correct answer is: Decreasing term

Group credit life insurance is primarily offered as a decreasing term policy. This type of insurance is specifically designed to cover a borrower's outstanding debt in the event of their death. As the borrower makes payments on their loan, the amount of coverage decreases correspondingly, matching the declining balance of the debt. This ensures that the beneficiary will receive the exact amount needed to pay off the loan if the insured passes away, thus providing financial protection to the lender. The structure of decreasing term insurance aligns well with the nature of most loans, where the amount owed reduces over time. This type of coverage is typically more affordable than permanent life insurance options, as it only provides a death benefit that decreases over time without accumulating cash value. Understanding the function and design of decreasing term policies helps clarify their role in protecting debts, especially in the context of group credit life insurance.