Decreasing Term Life Insurance – What You Need To Know
As has been mentioned numerous times before on this site, insurance companies and banks are ever eager to introduce new insurance products for your purchasing delight. In years past, one of the more notorious forms of term life insurance introduced was called decreasing term life insurance. Decreasing term life insurance has been around for some time, but is quickly losing popularity when compared to other insurance products.
The Introduction of Decreasing Term Life Insurance
The introduction of decreasing term life insurance can almost be traced to the new influx of jumbo mortgages and other large mortgage products a decade or two ago. The banks and insurance companies saw a need to both protect themselves and provide a product that protected their customers. During this period decreasing term mortgage life insurance was introduced on a broad scale to the market.
What Is Decreasing Term Life Insurance?
Decreasing term life insurance was designed to provide a death benefit that decreased with time, but at the same time provide a steady premium payment. This was great for the bank, because as more time passed, their exposure to risk was dropping exponentially. The longer the account owner lived, the less they actually had to pay out at their death.
The way that the product was marketed was to provide the account holder a slightly lower premium payment in exchange for a decreasing death benefit. One of the intentions was to use this type of decreasing term insurance to cover a particular debt obligation. The most common of which was the mortgage term life insurance.
The concept of mortgage term life was to provide risk protection for mortgage payments. The insurance coverage was intended to cover only the remaining balance of the mortgage should the account owner pass away. In this sense, as the mortgage was paid down, the death benefit on the life insurance had a decreasing value.
The other justification for this type of insurance was the misnomer that as the years past you would have less need for the full death benefit. The assumption was that as your children grew up and left the house, you wouldn't need as much coverage as before. This thinking failed to consider a number of key factors.
Why You Should Avoid Decreasing Term Insurance
For all of the talk of decreasing term insurance, this type of contract is almost all but avoided today. There are certainly still places that offer this type of protection, but their usefulness faded as the cost benefit ratios became skewed.
Decreasing term life insurance rates have been considered too high in recent years to make the purchase worthwhile. And if the premium is not making sense, then there is little else to the contract to justify the decreasing death benefit.
If you compare the rates of straight term insurance to decreasing term insurance, you will have a difficult time justifying the decreasing insurance rates. You will be much better off buying a straight plan that allows your account benefit to remain level or grow (rather than decrease). In the coming years, you will have enough difficulty worrying about inflation and the decreasing worth of your money. There is no need to compound the problem by allowing your death benefit to decrease year after year.
If you are really concerned about being able to cover the cost of your mortgage should you pass away, consider purchasing term life insurance that has the same term as your mortgage. If you have 20 years left on your mortgage, purchase 20 year term life. You may even consider purchasing whole life to cover more than just your mortgage. Whatever you choose to do with your insurance, be sure to look at it from the big picture. It may not be worth your while to purchase all of the different specific insurance policies. Perhaps one comprehensive whole life policy would serve you best.
Finding A Decreasing Term Life Insurance Quote
If you do choose to find a decreasing term life insurance quote, we recommend that you follow a few basic guidelines. If you have read any of our articles before, you will be somewhat familiar with the procedure. The most important thing when getting any kind of quote is to take the time to do the research.
The first thing that you need to do is determine what you want your insurance to accomplish and how much you are willing to pay to meet your objective. Take you needs to an insurance agent or broker and see what kind of quotes they can get you. You may also consider submitted your needs to a couple of online quote sources. The important thing is that you don't take the first quote that comes around. You want to find the best coverage for you money.
Make sure that you carefully consider any decision to pursue decreasing term life insurance. There are hundreds of different types of insurance that don't promise less as time moves forward. If the policy is right for you, promise yourself that you will take the time to adequately research the policy and the company you are looking for.
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