The correct answer is “Decreasing term.” A Decreasing Term life insurance policy is a type of life insurance in which the death benefit gradually decreases over time, and it is typically written for a specific period. Here’s a detailed explanation of why this answer is correct, along with explanations of why the other options are not:

Decreasing Term – Correct Answer:

A Decreasing Term life insurance policy is designed to provide coverage for a specific period, and the death benefit declines gradually over the life of the policy. This type of policy is often used to cover specific financial obligations that decrease over time, such as a mortgage or other loans. As the insured pays down the debt or the financial obligation decreases, the amount needed for coverage also decreases.

Key features of a Decreasing Term life insurance policy include:

• Period-Specific: It is written for a specified period, which can range from 10 to 30 years or more. It is particularly suitable for individuals who want to ensure that specific financial obligations, such as a mortgage, are covered during that time frame.
• Declining Death Benefit: The death benefit decreases gradually, usually on an annual basis, until it reaches zero at the end of the policy term. This reflects the decreasing financial responsibility it is intended to cover.
• Affordability: Decreasing Term policies tend to be more affordable than other types of life insurance, such as whole life or universal life, because the death benefit reduces over time.
• Targeted Coverage: These policies are often used to protect the insured’s beneficiaries from the financial burden of paying off a mortgage or other debts in the event of the insured’s death.

Now, let’s discuss why the other options are not correct:

Modified Whole Life:

Modified Whole Life is a variation of whole life insurance, where premiums are lower in the early years and increase in later years. The death benefit in a whole life policy typically remains level throughout the policyholder’s lifetime, meaning it does not decrease over time. Additionally, modified whole life insurance is not specifically written for a specific period.

20-Year Paid Up Policy:

A 20-Year Paid-Up Policy, often referred to as a 20-Pay Life insurance policy, is a whole life insurance policy where the policyholder pays premiums for a limited number of years (e.g., 20 years) and is then guaranteed coverage for life. The death benefit in such policies remains level and does not decrease over time.

Endowment:

An Endowment policy is a type of life insurance that provides a death benefit if the insured individual passes away during a specified period or if the policy matures. The death benefit in an endowment policy may not adjust periodically and does not typically decrease over time.

Endowment policies are more commonly associated with savings or investment features and are not specifically designed for decreasing coverage over time.

In summary, a Decreasing Term life insurance policy is characterized by its declining death benefit over a specified period, making it suitable for covering decreasing financial obligations, such as mortgages or loans.

The other options, including Modified Whole Life, 20-Year Paid-Up Policy, and Endowment, do not exhibit the same features of a decreasing death benefit over a specific time frame and serve different purposes within the life insurance spectrum.