Arizona Life and Health Practice Exam

Which of the following is generally considered a form of group credit life insurance?

1. Whole life insurance

2. Decreasing term insurance

3. Universal life insurance

4. Level term insurance

The correct answer is: Decreasing term insurance

Decreasing term insurance is specifically designed to provide coverage that aligns with the outstanding balance of a loan or debt. In the context of group credit life insurance, it is a policy that pays out a benefit that decreases over time, which matches the way that a borrower's debt decreases as they make payments. This type of insurance is often used in connection with mortgages or other types of loans, allowing the insurance to cover the remaining balance in the event of the borrower's death. Thus, as the debt decreases, the face value of the insurance protection also diminishes, ensuring that the benefit is not greater than the amount owed. This characteristic is particularly suitable and practical for creditors, making decreasing term insurance an ideal choice for group credit life insurance arrangements. Whole life insurance, universal life insurance, and level term insurance do not share this decreasing benefit feature. Whole life and universal life provide a level of coverage that remains constant, while level term insurance maintains a fixed benefit throughout the policy term without decreasing as debts are paid down. Therefore, decreasing term insurance effectively serves the purpose of group credit life insurance by providing a death benefit that corresponds directly to the outstanding loan amount, which is why it is considered the correct answer.