South Carolina Life Insurance Practice Exam

Which type of life insurance policy would best suit an individual with a 5-year installment loan requiring monthly payments?

1. Whole Life Insurance

2. Term Insurance

3. Universal Life Insurance

4. Decreasing Term Insurance

The correct answer is: Decreasing Term Insurance

The most suitable choice for an individual with a 5-year installment loan requiring monthly payments is decreasing term insurance. This type of policy is specifically designed to provide coverage that diminishes over time, typically aligning with the terms of a loan that decreases as payments are made. As the loan is paid down, the risk to the insurer decreases because the outstanding balance owed by the borrower diminishes. Therefore, decreasing term insurance offers a death benefit that decreases in value over the period, which can be particularly beneficial in ensuring that the remaining balance of the loan is covered in the event of the insured's death. This policy type provides the necessary coverage while often being more affordable than whole life or universal life options, making it an economical choice for individuals seeking temporary protection that corresponds to their financial obligations. Instead of paying for a permanent policy that may not be necessary given the short-term nature of the loan, decreasing term insurance offers a targeted solution that effectively meets the individual's needs. Using this type of insurance helps ensure that if something were to happen to the individual, their family or estate would not be burdened with the remaining loan balance.