Decreasing Term Life Insurance
Although we no longer get too many requests for decreasing term life insurance, it is still popular enough that people wonder about this plan and its usage. The main reason why this plan has become less popular is simply cost and functionality.
Decreasing term life insurance rates
By far the main reason why people no longer use this plan is cost. While the rate is not very high (as with most term plans), it usually is much cheaper to get a level term life insurance plan than a decreasing term life insurance plan.
More about decreasing term life insurance
As it is called, decreasing term life insurance offers a decreasing face amount. In other words, each year the plans face amount becomes less and less until it reaches zero by the end of the last year. Like the level term life insurance plan, decreasing term offers level premiums throughout the life of the plan. Beware that, unlike most level term, decreasing term does not usually guarantee premiums for life.
One important aspect of term life insurance is convertibility. If a person selects decreasing term and the plan is convertible, the amount convertible is only the face value at the time of conversion. For example, lest assume a man named Bob purchased a $100,000 decreasing term plan. Ten years later, Bob decides to convert his policy to whole life or universal life. At the time of conversation, the face amount of the decreasing term policy is now only $65,000. Bob can only convert to a $65,000 whole life or universal life.
Decreasing term life insurance comes in three different length, 30 years, 20 years and 15 years. The 15 year decreasing term looses face value the quickest of all plans. Meaning that you will see your insurance coverage go down rapidly through the years.
When is decreasing term life insurance most used
If we ignore the higher cost of this plan, decreasing term is often used to cover mortgages. It sometimes goes by decreasing mortgage life insurance. In this situation, the plan;s face amount closely matches the decreasing mortgage liability a homeowner may have taken on. As we mentioned, level term life can do the same job and even leave the survivors with extra money beyond the mortgage debt to pay for final expenses and other costs.
