What type of mortgage insurance is designed to decrease in coverage over time?

The correct choice is indeed the type of mortgage insurance known as Decreasing Term. This form of insurance is specifically structured so that the coverage amount decreases over the term of the policy. As the mortgage balance reduces—typically through regular payments—the amount of insurance coverage also diminishes to align with the decreasing risk tied to the mortgage.

For homeowners, this arrangement can be particularly beneficial since it generally results in lower premiums compared to level-term insurance, where the coverage remains constant throughout the policy's duration. This alignment with the decreasing financial obligation can make it a cost-effective solution for those taking out a mortgage.

In the context of mortgage protection, it effectively mirrors the borrower's liabilities, providing peace of mind that the insurance will cover the mortgage balance should the insured pass away, while the premiums remain affordable over time as the debt decreases.