Oklahoma Life Producer Practice Exam

A policy that provides coverage for the outstanding mortgage balance is known as what type of policy?

1. Level Term Policy

2. Decreasing Term Policy

3. Increasing Term Policy

4. Whole Life Policy

The correct answer is: Decreasing Term Policy

A policy that provides coverage for the outstanding mortgage balance is known as a decreasing term policy. This type of insurance is structured such that the death benefit decreases over the term of the policy, typically aligning with the amortization schedule of a mortgage. As the mortgage balance decreases over time as payments are made, the death benefit falls correspondingly, providing a safety net that ensures the mortgage is paid off in the event of the borrower's death. Decreasing term policies are particularly useful for mortgage protection because they match the debt obligation that households face, ensuring that beneficiaries have the means to cover the remaining mortgage balance without additional financial burdens. Such alignment creates a sense of security for policyholders, knowing that their family will not be left with the mortgage obligation if they pass away.