Decreasing Term Life Insurance Increases Your Flexibility

2007-03-08 10:33:40

( Financial )



You usually buy decreasing term life insurance to ensure that in the event of death, there will be enough money in death benefits to pay off your home mortgage. That will be one worry less off your back, enabling you to move on and think of other things to benefit your family.

In decreasing term life insurance your death benefit is decreasing in direct proportion to the decreasing balance in your mortgage. It guarantees that should anything happen to you there will be enough coverage to pay off the balance of the mortgage. Some insurance agents actually recommend decreasing term life insurance to you when they think you will have decreasing liabilities and, therefore, that you will also have decreasing coverage requirements in the future.

It pays to choose decreasing term insurance because premiums are cheaper than usual term insurance. If your primary concern is to ensure that your dependents do not lose their house in the event of your death, then decreasing term life is your cost-effective solution.

You thus keep more money with you and have more elbow room for, say, investing in other instruments that return more profits to you. If you feel you have the discipline to make good investments and keep them whole, then decreasing term insurance should be a good low-cost option.

But, remember that decreasing term life insurance is advantageous only when your liabilities will indeed be decreasing down the road. In fact, most people will probably tally up more debt. For example, your credit card balances may pile up or you may refinance your home even as the mortgage gets paid. In such cases, decreasing term may not be appropriate for you.

Remember too, that though you plan to have enough investments and savings many years down the road, sometimes you can fall short. You may be forced to dip into savings for emergencies or maybe you just can’t save enough. If you’re not too sure about your ability to save, then decreasing term insurance may not be effective for you.

Decreasing term life insurance puts more current resources at your disposal, giving you flexibility in your investment decisions. But it also requires from you a good measure of financial responsibility. The choice will be up to you.


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