Decreasing Term Insurance
Decreasing term insurance was invented so that a persons need for a large amount of insurance to cover a loss in wage or other incomes could be off set by a life insurance policy. As a person gets older the amount of insurance decreases. A decreasing term insurance policy is a perfect product to help protect the mortgage on a house. We will talk more in depth about that in a minute.
What Is Decreasing Term Insurance It is a type of insurance policy that has a face value that goes down or decreases while the premium or the amount you pay to have the insurance stays the same.
A general discussion about Term Life Insurance is in order before we dive deeper into how you can use a decreasing term insurance policy to your advantage.
The reason Term Life Insurance is so popular is because it cost less to own than any other type of life insurance. Term life will give a person protection during a specific time period. You can get a 5 year term policy, a 10 year term policy, a 15 year term policy, or a 20 year term policy. There are some companies that have 25 and 30 year term policies available. Unlike other types of insurance, term life policies offer no cash value accumulations so the only reason to own the policy is for the death benefit.
Types Of Term Life Insurance
- Decreasing Term Insurance: As we said this type of insurance is also known as decreasing term mortgage insurance. The amount stated when you purchase the policy ($100,000 decreasing term) will decreases over the policy term. So the way it works is like this: You buy a house that has a mortgage of $100,000 and at the same time you call around for decreasing term life insurance quotes. When you find a fair price for a $100,000 policy you purchase it. As you start to pay off your mortgage and the amount of money you owe on it decreases so will the amount of the death benefit on the insurance. So when you owe $50,000 on your mortgage the benefit of the insurance also will have decreased to $50,000. Over the course of the 30 year mortgage you can be assured that if you were to die the mortgage on your house will be paid off.
2. Level Term: This type of term insurance carries a level death benefit for a fixed number of years that is determined at time of purchase. Almost all insurance companies will sell level term.
3. Term Insurance That Is Renewable Annually: Unlike level term that has a level premium with a level death benefit, Annual Renewable has a level death benefit with a premium that goes up in price every year. This policy will start out as an inexpensive option but starts to get very expensive as the years go on.
Regardless of which type of term insurance you are looking at you can be assured that it and all term policies will be sold to you with a time period that is stated and that there will be a death benefit attached to it but it will never gather any equity nor will it ever have any cash value.
A decreasing term insurance policy should only be purchased if you can afford it. There is no sense of somebody that is barely making their payments and covering their bills to spend the extra money on something that they may never use. That is not to say that decreasing term insurance rates are expensive, but when you are first starting out you just might not have the extra money. You should look at decreasing term insurance as a very good financial backup for your family as long as you can afford it.
The best advice I can give anyone is to get a decreasing insurance life quote term and see if it fits into their budget. You should remember that you can always purchase decreasing term insurance one, two, or three years after you purchase you house.