Alaska Life Insurance Practice Exam 2025 - Free Life Insurance Practice Questions and Study Guide

A decreasing term life insurance policy is specifically designed to provide coverage that diminishes over time, typically aligning with a financial obligation that decreases. In this case, with a $10,000 bank note due in 5 years, a decreasing term policy would be ideal because it can be structured to match the declining balance of the loan as payments are made.

This type of policy ensures that if the insured passes away during the coverage period, the beneficiaries will receive a payout that can be used to cover the remaining loan balance, thus preventing financial strain on loved ones. As the loan balance decreases, the coverage amount decreases correspondingly, making it a more economical choice compared to other policy types that maintain level or increasing benefits.

For someone seeking insurance specifically to secure a loan, a decreasing term is often more suitable and cost-effective, making it the logical choice in this scenario. Other policy types, such as level term, whole life, or universal life, do not directly match the needs associated with a decreasing debt obligation and may offer more coverage than is necessary and at a higher premium.