What is decreasing term insurance?
Decreasing term insurance is a renewable term life insurance whose coverage decreases during the term of the contract at a predetermined rate. Premiums are generally constant throughout the contract, and reductions in coverage generally occur monthly or annually. The durations vary between 1 year and 30 years.
Decreasing term insurance explained
The theory behind the decline in term insurance is that, with age, certain responsibilities and the corresponding need for high levels of insurance decrease. Many of the decreasing term term insurance policies in force take the form of mortgage life insurance, which fixes its benefits on the remaining mortgage of an insured’s home. The reduction in term insurance alone may not be enough to meet a person’s life insurance needs. Affordable and affordable standard life insurance policies provide the security of a death benefit for the duration of the contract.
Cheap life insurance protection
Decreasing term insurance is a more affordable option than whole life or universal life insurance. The death benefit is designed to reflect the amortization schedule for a mortgage or other high personal debt that is not easily covered by assets or personal income. Decreasing term insurance provides pure death benefit without accumulating money. As such, this insurance option includes modest premiums for benefit amounts comparable to permanent or temporary life insurance.
For example, a 30-year-old non-smoker could pay a premium of $ 25 per month for the life of a declining-term policy of $ 200,000 over 15 years, customized to fit a calendar mortgage amortization. The monthly cost of the declining-balance fixed-rate futures plan does not change. As the insured ages, the risk of the carrier increases. This increased risk justifies the reduction in the death benefit.
A permanent policy with the same face amount of $ 200,000 may require monthly premiums of $ 100 or more per month. While some universal or whole life insurance policies help reduce face amounts when the insured uses the policy for loans or other advances, policies often have fixed death benefits.
Additional benefits of a diminishing lifespan
The predominant use of declining term insurance is most often used for the protection of personal property. Partnerships with small businesses also use a declining lifespan policy to protect debt from start-up costs and operating expenses. In the case of small businesses, if one of the partners dies, the death benefit from the declining-term policy can help finance continuing operations or help repay the percentage of the remaining debt for which the deceased partner is responsible. The collateral allows the business to secure commercial loan amounts at an affordable price.