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What is Decreasing Term Insurance?

Life Insurance

Decreasing term insurance is one of many term insurance options available. With decreasing term, the death protection decreases during the life of the insurance policy. However, the premium remains constant. Decreasing term insurance can be a wise choice in a number of situations.

  • Mortgage insurance. According to insurance experts, the option of decreasing term insurance was created as a way for homeowners to protect their mortgages. Over time, the mortgage balance decreases as regular payments are made, until finally the home is paid off and the mortgage is extinguished. The goal of a homeowner is to protect the house and to make sure there is money to pay off the mortgage no matter what. Once the mortgage is paid off, there is no need to have the insurance policy any more.
  • Business, school loans. Someone who gets a significant loan for business or education may have some of the same concerns as a homeowner. Business and school loans can be spread out for a long time, like mortgages. The business owner may fear how his family would pay off the business loan if he were to die. Similarly, the goal may be not to leave a heavy school loan debt to your family members if you die before the loan is paid off. Decreasing term insurance would start at the amount of the school or business loan and decrease to zero at the same time the loan is scheduled to be paid off.

Advantages of Decreasing Term Insurance

  • Low cost. Compared to other insurance, including regular term insurance, decreasing term insurance is a cheaper product. That only makes sense because the amount of insurance decreases over time.
  • Peace of mind. If a significant concern is not leaving exorbitant bills for your family members if you should die - such as a mortgage - then decreasing term insurance is a way to purchase that peace of mind.

Disadvantages of Decreasing Term Insurance

  • No cash value. There are plenty of insurance options that accumulate a cash value as you pay premiums over time. Decreasing term does not, meaning that the premiums you pay are never recouped, even in part, if you remain alive during the entire term.
  • No maturity value. Unlike many insurance products, if you die near the end of the term for decreasing term insurance, there is no value to collect. Of course, you should also understand the unique set up of decreasing term insurance before you buy a policy.

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