Decreasing Term Life Insurance Explained 

More and more people are realizing the importance of having a decreasing term life insurance. The reason behind is the worsening economic condition. Life is getting tougher and tougher. And each year, many people are losing their homes while others are getting bankrupt, heavily indebted, and are being laid off. While death is something that no person would dare to talk about, it is an unavoidable phenomenon. Ensuring that your family gets protected as you go will definitely give you peace of mind.

Many people think that life insurance can only be used upon the death of the policy-holder. This is not always the case. While this is the general concept of life insurances, its benefits can also be claimed by the policy-holder himself or by the beneficiaries during critical illness or permanent disability.

The Basics of Decreasing term life insurance

A particular type of life insurance is considered to be in a decreasing term when the death benefits decrease over the life of the policy. Once the policy holder dies, the beneficiaries get the maximum protection payout. But overtime, this benefit will be reduced. The reason behind the decreasing term life insurance is that as the policy matures, the needs and demands of the beneficiaries will also decrease together with the liability of the insurance provider.

The death benefits may be claimed by the dependents of the deceased for up to 30 years. For example if you take out a decreasing term life insurance to cover a mortgage that costs $500,000 for 30 years, the insurance you will get is basically something that will cover the repayment of your mortgage for such period of time. In the event of death, your remaining balance will be paid back by the insurer and if you have taken a more comprehensive plan, your beneficiaries may also receive financial assistance either in full or installment. The life insurance will eventually go down in value as the need for it declines. As the year pass by, your loan balance will be reduced until it has been paid in full. Therefore, there will be a less necessity for the benefit payout to be as bigger as the initial grant. This is how a decreasing life insurance term works.

Aside from protecting their mortgage, many people take out this kind of life insurance to prevent their family from being bothered by their creditors. People usually take this to pay for their financial obligations including student loans, mortgage fees, car loans, and so on. This form of cover allows individuals to pay back their debts without having to transfer the burden to their family.

The opposite of a decreasing term life insurance is the level term insurance. In this kind of protection policy, the beneficiaries will get the same amount of benefits from the first year to the proceeding years. If you have very young kids and you don’t think they can handle the financial difficulties without you, you may choose a level term life insurance. The only negative aspect of this insurance policy is that the premium tends to increase every year. So if you’re paying $200 for your life insurance, expect that it will be increased for a certain percentage for the following years. It goes up and it will never go down. Nonetheless, you can make sure your family gets the same amount of assistance from the time you leave until after a period of time.

So which one is better? Both of these term options are helpful in one way or another. It actually depends on your financial abilities and the necessity for the benefits. Of course, if you only intend to pay back your mortgage so your family doesn’t lose the house, a decreasing term will definitely be enough. Sometimes, it’s not really practical to get a level term insurance because the premium rates are very high. If you have enough savings, you can simply invest it on the right business so your family continues to receive support from you without having to pay expensive monthly premiums. So if you only need a temporary solution for debts, loans or mortgages as the case may be, opt for a decreasing term insurance.

If you’re unsure whether to choose a level or decreasing term insurance, you can always consult a professional insurance agent. Always consider the future of your dependents and the necessity of the policy you’re going to take.

Benefits of Decreasing Life Insurance

The first and major benefit of getting a decreasing term life insurance is its cost. A decreasing term insurance is way cheaper than the fixed term insurance. Unlike the level term, a decreasing term has a monthly premium which does not go up as the policy matures. The insurer can immediately provide you with an estimated cost of the monthly premium. Such premium will depend of course on the type of policy you wish to take, the particular obligation you wish to cover. For instance, if you’re taking a decreasing term insurance to cover your mortgage, expect for a lower premium if you have a smaller debt. Otherwise, you will have to pay for a more expensive premium.

People who don’t have enough money to secure their future through a level life insurance can take such opportunity by obtaining a decreasing term life insurance. Because of the affordability of the monthly premium, anyone can take out this policy without having to bear the burden on their shoulders.

A decreasing term life insurance is best taken to protect a mortgaged property. Getting a home loan is both beneficial and risky. It’s beneficial because it allows you to purchase a house even though you don’t have enough money to pay for it. But it can also be risky because you don’t know what may happen in the near future. You may face a very difficult situation that will prevent you from paying back your loan. This would mean losing your property or turning over your house to the lender. A decreasing life insurance eliminates the risk of your house being repossessed or foreclosed by the bank.

Drawbacks

Death benefits which are in a decreasing term don’t allow you to cover more than one liability. The moment you sign up with this insurance program, you will be required to choose what particular obligation you wish to insure. So if you incur some other financial obligations while paying for your monthly premiums, they will not be covered. To cover future mortgages, you may be in need to take a separate policy. This type of life insurance is not applicable when refinancing a mortgage. Because the benefits decrease, it will always be based on the remaining balance of the original mortgage. It will not be able to adjust to cover the new mortgage taken by the borrower.

While it is true that a decreasing term life insurance can be very cheap, this form of policy can end up being the most expensive insurance in the end, according to experts. If you stayed healthy until the end of the policy, you will not be able to get benefits in any form as it has no maturity value.

A decreasing term life insurance doesn’t have any investment policy. Therefore, there is no maturity value that is payable at the end of the term.

Decreasing Term Life Insurance Conversion Clause

Conversion to Straight or Cash Value

Taking out a decreasing term life insurance policy is indeed beneficial if you have a financial obligation to protect. This includes mortgages, amortized loans, educational loans, etc. But aside from these things, a decreasing term insurance can also be converted into a cash value life insurance. Many people choose to do this when they see that they’re almost done paying back their loan and they are still more than capable to pay for the remaining balance. Nonetheless, there’s also a limitation to the conversion clause. Generally, the policy holder cannot convert more than 80% of the value of a decreasing term life insurance.

Conversion to Mortgage Assurance Loan

A decreasing term life insurance can also be converted to a mortgage assurance loan. This can be done by making the amount of the decreasing remaining balance of the loan equivalent to the amount which is provided in a typical life insurance policy. On this kind of conversion, the policy holder can protect his or her mortgage investments and at the same time, ensure that their beneficiaries will be entitled for a lump sum that is equal to the remaining loan balance in the event that the policy holder dies.

Conversion to Credit Insurance Policy

The policy holder can also convert a decreasing term life insurance into a credit insurance policy. This form of policy allows the policy holder to pay off their credit loans in case of death. The family of the policy holder will no longer become his or her beneficiaries and the money will be taken straight to the lender. The face value of the credit insurance policy decreases as the loan balance is reduced or paid off by the borrower.

Now that you have a full understanding of what a decreasing term life insurance is, it’s time that you know how to shop for the most affordable and comprehensive policy available today.

Shopping for the Right Policy

Comparison shopping is crucial in finding a decreasing term life insurance. It is important that you follow certain guidelines to make sure you’re purchasing the right insurance policy that will give you the most benefits in the end. The good news is – you don’t have to go through much workaround to get the best life insurance. The World Wide Web has a whole bunch of information that can help you decide which policy will provide you with the most benefits.

There are two ways to get a quote for the term life insurance. First, you can call a local insurance agent. Second, you can go online and obtain quotes from there. Make sure to consider your options before taking an insurance cover. The things that you must always consider are the cost, amount of cover, benefits, and exclusions.

Whether you’re buying a house for the first time or moving house, or taking out a very expensive loan, a decreasing term life insurance can be the perfect cover for you.

mortgagelifeinsurance.biz, investopedia.com, wikipedia.org