CII Certificate in Insurance - Financial Protection (R05) Practice Exam

Decreasing term assurance is ideally suited for a repayment mortgage due to the nature of the loan structure. A repayment mortgage requires the borrower to pay back both the capital and the interest over the term of the loan, meaning the outstanding balance decreases over time.

Decreasing term assurance matches this decreasing liability by providing a sum insured that reduces in line with the outstanding mortgage balance. This alignment ensures that in the event of the policyholder's death, the pay-out will cover the remaining mortgage amount, providing financial protection to the borrower's dependents without over-insuring beyond the liability.

In contrast, whole life assurance provides a guaranteed payout at the end of the policyholder's life or upon their death but does not consider the decreasing nature of a repayment mortgage. Level term assurance offers a fixed sum insured throughout the policy term, which doesn't adapt to the decreasing balance of the mortgage, potentially leaving beneficiaries with more payout than necessary. Increasing term assurance provides a sum that rises over time, which is not suitable as it would not correspond with the mortgage repayments that decrease.

This alignment of decreasing term assurance with the repayment mortgage makes it the most suitable choice for protecting against the risk of outstanding debt in the event of the borrower's death.