You may have at one time or another purchased a home and then shortly thereafter been asked by the mortgage company to purchase what is known as decreasing life insurance policy.
However before you sign I recommend that you don’t. In this article I’m going to cover what a decreasing term life insurance is, what it’s for, and give you some of the pro’s and con’s.
What Is A Decreasing Life Insurance Policy
A decreasing term policy is a life insurance policy that has a declining benefit but usually has a fixed level payment that never changes. For example if you had a $100,000 decreasing term policy that lasted 10 years you would start out at $100,000 your first year and and each year thereafter would be $10,000 less than the year before. These policies come in many different terms from as long as 30 years to as short as 1 year.
The policies are also used for many different reasons such as the purchase of a business to cover the business owner until he has paid off the loan. However these type of life insurance policies are most commonly bought in conjunction with mortgages to cover the cost of the loan in case the owner passes away, the policies are also known as decreasing term mortgage life insurance.
However these life insurance policies may not be what you expect them to be. Read on.
The Pro’s and Con’s
When it comes to decreasing life insurance their are few good things and a big downside. The big benefit to having a policy like this is that it will cover your mortgage or loan in the event of your death.
However on the down side you need to know that you may own the policy but the mortgage company is usually the beneficiary when using decreasing term mortgage insurance. This means you won’t have control of the money after you pass away because the lender will obtain all rights to the money of the policy.
Second, premiums will stay the same as your benefit gets less and less. The problem with this is whether you have $100,000 of coverage or just $5000 in coverage you still have to make the same payment.
Third and finally, a decreasing life insurance policy is usually only meant to cover one debt such as your mortgage. In fact when I was researching for this article I found site after site that said you should not use decreasing term life as your primary form of life insurance, I agree with this statement however what most of these sites failed to do was tell you why this is. Read on to learn more.
Why This Shouldn’t Be Your Primary Life Insurance Policy
The reason you don’t want to use decreasing life insurance as your primary source of life insurance is because most Americans are under insured first off. In factLIMRA also known as the Life Insurance and Marketing Research Association found that 44% of all households either do not have life insurance, or believe they need more.
If you have a decreasing term policy to cover your mortgage, you will still need coverage for the other debts you have and most importantly coverage for the loss of a breadwinner, this a person that produces an income.
For example, if you have $100,000 worth debt, this might sound like a suitable amount of life insurance to have but if your spouse passes away and they were contributing with an extra $30,000 a year in income you may have sold yourself way short.
In the end I hope this article clears up a few questions about decreasing life insurance, however if you have a question feel free to ask, also if you would like to learn about the type of life insurance you need contact your local insurance agent today.
Can you even still buy decreasing term life?
I would like to know of a company or two….that sell it.
I need it for a very specific need.
Jay: Typical decreasing term is usually sold by mortgage companies.