Decreasing term insurance is a variation of term life insurance that is structured to have a level premium with a decreasing face amount that reduces over time. Historically, decreasing term policies have been used to cover financial obligations such as amortized loans and mortgages that have declining balances over time.
How Does Decreasing Term Insurance Work?
Decreasing term insurance is simple to understand. You purchase an initial face amount of life insurance at guaranteed level rate. As the years go by, the insurance coverage reduces incrementally and eventually goes down to an established minimum, say $10,000, or even to zero in some cases. Even though coverage reduces your premiums remain the same. With most decreasing term policies you can design them to have a declining balance over 20 or 30 years. As with most term insurance, decreasing term builds no cash value and is very affordable.
Why Buy Decreasing Term Insurance?
Traditionally, decreasing term insurance has been a great solution for covering temporary needs that reduce over time. One of the best uses of decreasing term is as mortgage life insurance to pay off your home in the event of your death. The cost for decreasing term is relatively inexpensive and you can design a policy that matches your declining mortgage balance. Other uses include insuring any personal or business loans that have a measurable payoff schedule.
Is Decreasing Term Life A Good Option for You?
Historically, decreasing term life insurance has been very affordable when compared to other life insurance options. More recently though, with the advent of level term insurance, decreasing term has become significantly less popular. In fact, outside of the companies specializing in mortgage protection, very few of the competitive term companies still offer this type of protection.
The main reason for the decline in popularity of decreasing term is that in today’s marketplace you can buy level term insurance (with a level premium and death benefit) at lower rates. In other words, there is no decreasing balance of insurance and the premiums are lower. Since it doesn’t makes sense to pay more for less benefits, decreasing term insurance is no longer ultimately competitive in today’s marketplace. When considering decreasing term, you should always get a comparable level term life quote.
Decreasing term is term life insurance that has a fixed rate and provides coverage that reduces over time. Like most term plans, decreasing term is inexpensive and does not build cash value. It is great for situations involving declining balances such as mortgages and other amortized loans. If you are in need of coverage to protect your home mortgage or business loan, you should compare decreasing term and level term insurance. If you have questions or would like a custom life insurance quote, call MEG Financial today at (877) 583-3955. We represent over 100 insurance companies and can match you up with the company that will offer you the best policy!