31. In a decreasing term policy which of the following decreases each year?
Answer: D
The face amount decreases each year in a decreasing term policy.
In a decreasing term policy, the face amount, or the death benefit, diminishes annually over the term of the policy. This structure is designed to provide a decreasing level of coverage as the policyholder ages or as their financial obligations decrease.
A) The cash value
The cash value does not decrease in a decreasing term policy because such policies typically do not accumulate cash value. In fact, decreasing term policies usually lack a cash value component altogether, making this option incorrect.
B) The reserve
The reserve in an insurance context generally refers to the funds set aside to pay future claims. In a decreasing term policy, the reserve may not necessarily decrease each year, as it is based on the insurer's pricing and risk assessment. Therefore, this option is not applicable.
C) The premium
Premiums typically remain level in a decreasing term policy, meaning they do not decrease over time. Instead, the premium amount is set at the beginning of the policy term and remains constant, making this option incorrect.
D) The face amount
The face amount is the correct answer because it is the key feature of a decreasing term policy. It explicitly reduces each year according to the terms of the policy, reflecting the decreasing financial obligations of the policyholder.
Conclusion
In summary, the correct answer is D) The face amount, as it directly corresponds to the defining characteristic of decreasing term policies. Other options, such as cash value, reserve, and premium, do not reflect the nature of this type of insurance and therefore do not adequately answer the question.