What type of insurance is usually purchased in connection with a mortgage loan

Rationale

Decreasing term.

When purchasing insurance in connection with a mortgage loan, decreasing term insurance is typically chosen. This type of insurance is designed to cover the remaining balance of a mortgage as the outstanding loan amount decreases over time.

A (Level term.) YOUR ANSWER

Level term insurance provides a fixed death benefit over a specific term length, with the benefit amount remaining constant throughout the policy's duration. While this type of insurance may offer stability, it is not commonly associated with mortgage loans where the outstanding balance decreases over time.

B (Whole life.) YOUR ANSWER

Whole life insurance is a permanent policy that provides coverage for the insured's entire life as long as premiums are paid. It includes a cash value component that grows over time. However, whole life insurance is not typically purchased specifically in connection with a mortgage loan.

C (Universal life.) YOUR ANSWER

Universal life insurance is a type of permanent life insurance that offers flexibility in premium payments and death benefits. It allows policyholders to adjust their coverage and premiums over time. While universal life insurance provides versatility, it is not specifically tied to mortgage loans.

D (Decreasing term.) CORRECT

Decreasing term insurance is structured to align with the decreasing balance of a mortgage loan. As the mortgage is paid down, the coverage amount decreases accordingly. This type of insurance ensures that the outstanding mortgage balance is covered in the event of the insured's death.

Conclusion

In the context of mortgage loans, decreasing term insurance is the most common choice to provide coverage that matches the decreasing balance of the loan. This targeted insurance type offers financial protection for the borrower's mortgage obligations as they are gradually paid off, making it a practical and popular option for homeowners.

What type of insurance is usually purchased in connection with a mortgage loan

Decreasing term.

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test