Why Decreasing Term Insurance Is Losing Popularity
Decreasing term insurance is a financial product that has lost some of its luster in recent years. While it has taken some of the business away from some lesser insurance products in the past, the current climate of rates and availability of straight term life insurance has led to the decline of decreasing term insurance. Many are finding that it is just not worth the price for this type of decreasing insurance policy; most are better off paying the small premium increase and going with an alternative form of life insurance instead.
What Is Decreasing Term Insurance?
Decreasing term insurance is a peculiar insurance product that does as the name suggests, it decreases. As time progresses, the original death benefit promised by the decreasing term insurance policy declines. The theory behind why this would be beneficial is best explained by a similar insurance product called mortgage term life insurance.
In the case of mortgage term life, your insurance policy is established to cover the cost of the remaining balance of your mortgage. As you continue to pay down your mortgage, you require a small death benefit to cover the remaining balance. As such, the insurance policy decreases as time progresses.
Decreasing term insurance is the same as this type of decreasing mortgage insurance. The intent is to provide cheaper premium insurance to cover items that have a declining need for coverage. There are a number of other circumstance in which this seemingly makes sense.
The Argument Against Decreasing Term Insurance
The primary argument against decreasing term insurance is that there seems to be very little benefit to this type of policy over a traditional term life insurance policy. Not only that, but you are giving up death benefit each year for a slightly cheaper policy (sometimes not even cheaper). In other words, the longer you live, the less your policy is worth. You couple that with inflation, and you have an investment that is rapidly losing its value.
A decreasing term life insurance quote has become less and less appealing in today’s insurance market. More and more term life insurance policies are being used instead. Because of the interest rates, the premium costs are not very different between the policies, and you also have the benefit of increased death benefit.
Rather than waste money on a policy that only covers the remainder of their mortgage, many people have simply taken out policies with sufficient death benefit to cover the entire cost of the mortgage from day one. If they have a 30 year mortgage, they elect 30 year term life insurance. 15 year mortgage, 15 year term. And if they do happen to die during the life of the mortgage, their beneficiaries will be able to pay off the mortgage and have some left over for other expenses.
Before you jump into decreasing term insurance, be sure that you do sufficient research to make sure it is right for you. A cost analysis projection from your financial advisor should help direct you to making the best choice for your needs.
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