An individual has a 12,000 loan from the Bank to purchase a boat, which is scheduled for repayment in monthly installments over 48 months. Which Life Insurance would be most efficient at protecting the lender should the borrower die prior to retiring the debt?

• A. Whole life
• B. Increasing term
• C. Decreasing term
• D. Flexible premium

Answer: (C)

The main idea is to use life insurance that mirrors the loan balance to protect the lender if the borrower dies. For a loan that’s repaid in fixed monthly installments, a decreasing term policy fits best because the death benefit starts at the amount owed and declines as the principal is paid down. This means the coverage matches the actual debt remaining, so if the borrower dies early, the payout is just enough to pay off what's still owed, protecting the lender without paying for unnecessary extra coverage. It’s also typically cheaper than level-term because the benefit shrinks over time.

Whole life would provide a constant death benefit and higher cost, which isn’t as efficient for covering a loan that gets smaller over time. Increasing term would pay more later, which doesn’t align with the loan balance when protection is most needed. Flexible premium isn’t a standard debt-protection product and wouldn’t guarantee a declining, loan-aligned benefit.