What type of policy is recommended to secure a loan against the risk of death?

A decreasing term policy is typically recommended to secure a loan against the risk of death because it is designed to provide a death benefit that decreases over the term of the policy, aligning with the way loan balances often reduce over time. As borrowers pay down their loans, the amount of coverage they need to secure the loan also decreases, making this type of policy cost-effective and purpose-driven. The premium for a decreasing term policy is generally lower than that for other types of life insurance since the coverage diminishes as the term progresses.

In contrast, a whole life policy offers a fixed death benefit and builds cash value but may come with higher premiums than necessary for securing a loan. A term life policy provides coverage for a specific period but does not decrease over time, which may not match the declining balance of the loan. While a universal life policy offers flexible premiums and adjustable death benefits, it can also be more complex and costly than necessary for simply covering a loan's risk, especially if a straightforward decreasing term policy fulfills that need effectively.