17. Your client has just bought a new home which he has financed with a $150,000, 7.5% interest, 30-year bank loan. He would like to be sure that if he dies prematurely, the unpaid balance of the mortgage would be paid. He wants a policy that will cover the mortgage balance - no more, no less - anytime during the life of the mortgage. Which policy is designed to meet this need?
Answer: D
Decreasing term policy is designed to meet the client's need.
A decreasing term policy provides life insurance coverage that decreases in value over time, aligning with the unpaid balance of a mortgage as it is paid down. This makes it an ideal choice for individuals who want to ensure that their mortgage is covered in the event of premature death.
A) Level term policy.
A level term policy offers a fixed death benefit amount that does not change over the term of the policy. While it provides consistent coverage, it does not adjust to match the decreasing mortgage balance, making it unsuitable for the client's specific need to cover only the remaining mortgage balance.
B) Home service policy.
A home service policy typically provides burial or final expense coverage and is generally designed for low face amounts. It does not specifically address mortgage protection, nor does it adjust coverage as the mortgage balance decreases, thereby failing to meet the client's requirement.
C) Increasing term policy.
An increasing term policy provides a death benefit that increases over time, which may be useful for covering rising expenses or inflation. However, it does not align with the client's need to have a policy that decreases in value as the mortgage balance decreases, making it an inappropriate choice.
D) Decreasing term policy.
A decreasing term policy is specifically designed to provide a death benefit that decreases over the term of the policy, paralleling the decreasing mortgage balance. This aligns perfectly with the client's need to ensure that the remaining mortgage amount is covered in case of premature death, thus making it the correct choice.
Conclusion
The decreasing term policy is the only option that matches the client's desire to have life insurance coverage that corresponds directly with the declining mortgage balance over time. All other options either provide fixed or increasing coverage amounts that do not align with the specific requirement of matching the mortgage's unpaid balance. Therefore, the decreasing term policy is definitively the best solution for the client's needs.