One of the most popular forms of life insurance purchased today is term life insurance.
In most cases, premiums are affordable and the lump sum payout to beneficiaries is very attractive.
Like other forms of life insurance, riders and variations on the policy are available.
Once such variation of standard term life insurance is called decreasing term life, offering a decreased premium over the term of the policy.
Premiums for a policy such as this are set based on the standard parameters of:
• Current age
• Term of policy
• Cover desired
• Current health
• Gender
• Smoking status
For those in older age groups, the terms are often more affordable for term insurance policies than they would be for whole of life, but older individuals will still pay a higher premium than someone in the prime of their life. In addition, if the individual is in poorer health, premiums would be higher.
Why Would I Want a Decreasing Term Life Insurance Policy?
Many individuals will secure life insurance to help their loved ones financially survive in the wake of their passing. For those that expect to be on a limited budget as they get older, a decreasing term life insurance policy is very attractive. Although the benefits decrease as the policy reaches its final term date, so do the premiums.
The main reason someone would choose a policy such as this would be that the decreasing payout is set to mimic the remainder of the principle on the home’s mortgage. In this particular case, the beneficiary could use the payout to pay off the remainder of the home and own it outright, leaving them with no mortgage payment as they start their journey without their partner.
As briefly mentioned, the lower premium is also very attractive. Budgets can become very tight as one gets on in years and a high insurance premium may simply become unaffordable. Since the benefit payout is decreasing over time, the premium will go down as well. As income becomes more and more limited with old age, the premium decrease allows the insured to continue to pay for the insurance without dramatically affecting the household budget.
How Do I Pick the Right Policy?
The first concern of any insurance policy is in how much coverage is needed. However, unlike a standard policy, the insured needs to make sure they have enough coverage for the here and now versus concentrating on how future inflation will affect the coverage. While factors such as this are still obviously important, the immediate payout will be the biggest and should be carefully considered.
In addition to the mortgage situation mentioned above, other contributing factors to the amount of coverage at the start would be things such as credit card debt, personal loans, automobile payments, and any additional educational costs being paid. In most of these cases, the debt load will decrease as time passes, and so does the need to compensate for these financial needs in the form of insurance.
When deciding on the term of the coverage, the insured will need to sit down and budget everything out over the expected course of repayment. For instance, how many years are remaining on the mortgage? When will the car be paid off? If there is no further credit card spending, how much longer will it take to pay the cards completely off? Is there a retirement account or pension fund that will become accessible at some point in the future?
When all of these questions are answered as well as putting in hard numbers for the financial needs, then it is time to discuss policies with one of our insurance experts. They can assist in finding the proper coverage as well as find policies for the proper term of cover.
What Are the Pros and Cons of Decreasing Term Life Insurance?
Pros
• Term life insurance policies are cheaper
• Premiums will decrease over time to reflect possible declining bills and income
• Benefits are received in one lump sum
• Riders can be added, such as critical care, to add value to the policy
Cons
• Insured can possibly outlive the term of the policy, resulting in no benefits payout
• While premiums do increase, so does the payout. If unexpected bills or costs arise late in the term of the policy, the declining payout may not meet financial needs.
• Missing a premium payment will result in voiding the policy (common for any insurance)
If you think a decreasing term life insurance policy is for you, call or use our online contact form to discuss your needs with a Claybrooke insurance specialist. You can also use our comparison tool to start the process and then discuss your specific needs with one of our specialists after reviewing the policies that fit within your budget.
We look forward to hearing from you and helping you find the best life insurance coverage to offer peace of mind to both you and your family.