PSI Ohio Insurance Practice Exam

What is a key characteristic of a decreasing term life policy?

1. The face amount remains constant.

2. The face amount reaches zero at policy expiration.

3. The premiums increase over time.

4. It cannot be renewed after expiration.

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

A key characteristic of a decreasing term life policy is that the face amount decreases over the life of the policy. Specifically, this means that the death benefit decreases to zero at the end of the policy term. This is designed to provide coverage that aligns with specific financial obligations, such as a mortgage, where the debt decreases over time as payments are made. In contrast, a constant face amount or premiums that increase over time are not features of a decreasing term policy. In fact, a decreasing term policy typically has level premiums, meaning they remain the same throughout the policy term. Also, the nature of a decreasing term policy is such that it often has a predetermined expiration, at which point the coverage ceases, but renewal options can vary based on the policy and provider.