Final answer:
A Decreasing term life insurance policy is typically designed for mortgage protection, aligning the death benefit with the decreasing mortgage balance. Whole life insurance has cash value but isn't specific for mortgages, while level term provides a fixed death benefit, and increasing term has a growing death benefit over time not suited for mortgage protection. A drop in inflation may lower interest rates for adjustable-rate mortgages.
Step-by-step explanation:
The kind of life policy that typically offers mortgage protection is B. Decreasing term life insurance. This type of policy is designed to match the decreasing balance of your mortgage loan as you pay it off over time. With decreasing term insurance, the death benefit decreases at a predetermined rate over the life of the policy, usually in line with the balance on a fixed-rate mortgage.
In contrast, whole life insurance, also known as cash-value life insurance, has a death benefit and also builds a cash value over time, which can be used by the policyholder for various needs. However, it is generally not specifically tailored for mortgage protection. Level term insurance offers a fixed death benefit over the term of the policy, without decreasing over time. An increasing term policy, while less common, would have a death benefit that increases over time, which is typically not suited for mortgage protection which decreases over time.
If inflation falls unexpectedly by 3%, a homeowner with an adjustable-rate mortgage may see their interest rates—and thus their mortgage payments—decrease if the drop in inflation leads to a decrease in market interest rates. This contrasts with a fixed-rate mortgage, which maintains the same interest rate over the life of the loan regardless of changes in market rates or inflation.