Question

What are the 3 basic types of term coverage available, based on how the face amount of the death benefit changes during the policy term:

a) Level, decreasing, and increasing
b) Renewable, convertible, and decreasing
c) Level, convertible, and renewable
d) Increasing, decreasing, and convertible

Answer 1

The 3 basic types of term coverage available based on how the face amount of the death benefit changes during the policy term are level, decreasing, and increasing.

Step-by-step explanation:

The 3 basic types of term coverage available, based on how the face amount of the death benefit changes during the policy term, are:

1. Level: In level term coverage, the face amount remains the same throughout the policy term. This means that if a policyholder purchases a level term policy with a death benefit of $100,000, the death benefit will remain $100,000 for the entire duration of the policy.
2. Decreasing: In decreasing term coverage, the face amount decreases over the policy term. This type of coverage is often used to cover specific financial liabilities that decrease over time, such as a mortgage. For example, if a policyholder purchases a decreasing term policy with a death benefit of $200,000 to cover a mortgage, the death benefit may decrease by a certain percentage each year to match the outstanding mortgage balance.
3. Increasing: In increasing term coverage, the face amount increases over the policy term. This type of coverage is less common but may be useful to cover expenses that are expected to increase over time, such as inflation or future financial obligations. The death benefit may increase by a certain percentage each year or at specified intervals.