Decreasing Term Life Insurance

2008-10-15 16:56:30

( Financial )



What is Decreasing Term Life Insurance?

It is one of three major types of term life insurance, where your death benefit will gradually decrease each year. You still pay level insurance premiums during the term of the insurance, but your coverage or benefit amount decreases at certain degrees depending on how long the term is.

For example, the coverage may be at ten thousand dollars during the first year, then the coverage will decrease by about five to ten percent of the amount every year after that. By the time the term expires, the coverage amount will be zero.

Advantages and Uses of Decreasing Term Life Insurance

It may seem that you are shortchanged when you buy decreasing term life insurance, but it does have some advantages.

The premium that you will pay is much lower than that of a regular term life policy. Chances are quite great that you will outlive the policy's life anyway, so you end up saving more money.

Some lenders require insurance coverage as security for loans, and the decreasing term life insurance policy is perfect for such purpose.

As in other insurance types, you can add a critical illness option to your decreasing term life. This will ensure that your plan will continue to be in force even if you have been disabled or diagnosed with a critical illness. You can also add another option in which further premium obligations are waived in case you become too disabled or ill to continue working. You can also add your spouse as a co-insured party to the policy.

Cons of Decreasing Term Life Insurance

On the other hand, a decreasing term life insurance has limited coverage and should not be your only policy if you have a whole family to support. There is no investment or cash value tied to a decreasing term life policy as it will self-deplete as it approaches the end of the term. Unlike a full life policy, you will not receive any cash values in case you want to preterminate the coverage.

Before deciding on decreasing term life insurance, you may want to consult an insurance agent or your lender about your options.


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