Massachusetts Life Producer Practice Exam

Which life insurance policy is commonly associated with mortgage protection?

1. Whole life

2. Universal life

3. Term life

4. Decreasing term

The correct answer is: Decreasing term

Decreasing term life insurance is commonly associated with mortgage protection because it is specifically designed to cover a borrower’s mortgage obligation. This type of policy decreases in value over time, aligning with the way a mortgage balance diminishes as payments are made. As the outstanding balance on a mortgage decreases, so does the amount of coverage provided by the decreasing term policy, making it a cost-effective solution for homeowners. This type of insurance is particularly appealing for mortgage protection because it ensures that if the insured individual passes away, the policy pays out a sum that is sufficient to cover the remaining mortgage, thereby securing the financial future of their dependents and ensuring the home remains with the family. The structure of decreasing term insurance, with premiums typically lower than other policy types, makes it an attractive option for those looking to protect their family from financial burdens related to mortgage debts. In contrast, whole life and universal life policies are designed to provide a permanent death benefit and have a savings component, which doesn't specifically match the need for mortgage coverage. Term life insurance, while also offering a death benefit, does not necessarily decrease over time, making it less suitable for the purpose of matching mortgage balance declines.