Colorado Life Producer License Practice Test

What are the three basic types of term insurance?

1. Level, increasing, and decreasing

2. Fixed, variable, and universal

3. Term, whole, and variable

4. Basic, standard, and premium

The correct answer is: Level, increasing, and decreasing

The three basic types of term insurance are level, increasing, and decreasing. Level term insurance maintains a constant death benefit throughout the policy term, meaning the insured amount does not change over time. This type of coverage is often chosen for its predictability, as it allows policyholders to know the exact payout that will be provided to beneficiaries. Increasing term insurance features a death benefit that grows over the policy period. Typically, this type of coverage is used to keep pace with inflation or cover increasing financial obligations, ensuring that the beneficiaries receive a higher amount as time progresses. Decreasing term insurance, conversely, has a death benefit that decreases over time. This form is often aligned with a decreasing financial obligation, such as a mortgage, where the need for coverage diminishes as the debt is paid down. Understanding these types aids in selecting a policy that best meets the financial needs and circumstances of the insured individual, reflecting the importance of aligning insurance products with specific objectives and life stages. The other provided options pertain to different classifications or types of life insurance products rather than specifically addressing the categories of term insurance.