Should you Look into Decreasing Term Life Insurance?
decreasing Term life insurance is a type of Term Life policy that begins with a high face value that decreases over the life of the policy. In most Decreasing Term policies, particularly those that are purchased as Mortgage Insurance, the premium remains "level" or unchanged while the benefit decreases—slowly at first, and more rapidly in later years. The logic is that as you get older, you present a greater risk to the company, justifying the level premium in spite of the decreased payout. However, if you conduct some research, you may be able to find a decreasing term policy that has a decreasing premium as well as a decreasing benefit.
The main reason for purchasing Decreasing Term is the availability of a very high face value for the same or less rates than Level Term. Protecting your business, your family, or your mortgage might be reason to buy the Decreasing Term. Often however, financial advisors do not recommend Decreasing Term if it is your only Life insurance.
Decreasing Term policies are easily customized, particularly if the purpose is to cover a large debt. The life insurance policy can be amortized to decrease at the same rate as the debt. This can be an advantageous way to protect a business as the benefit can be used to pay off debt, train new help, or pay the legal costs of transferring ownership. If you need to insure a commercial loan account, a Decreasing Term policy will be less expensive than mortgage insurance or other debt protection sold by your bank.
Decreasing Term may be the right choice for you if:
- You need it only to cover a mortgage, and it is a less expensive option than bank mortgage insurance; be aware that the beneficiary will likely be the bank.
- You want to provide for a growing family, but will not need as much insurance in retirement years;
- You own a business on which you have outstanding loans; you will not need the insurance once the loans are paid off.
You probably should NOT buy Decreasing Term if:
- Your intention is to provide a benefit to your heirs;
- You have a spouse or other family that would be dependent on a life insurance policy or income;
- You want to be sure final expenses are taken care of;
- You want to leave a benefit to a favorite charity;
- You will have a large retirement estate on which taxes will be owed; life insurance is tax exempt and can be used to pay inheritance taxes.
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