If you’re in the market for term life insurance, you may have discovered there is not a one-size-fits-all type of term life insurance. Benefit amounts, lengths of term, and types of policy vary.
One such type of term life insurance is known as decreasing term life insurance.
Term Life Insurance
Before we get into decreasing term life insurance, here’s a brief overview of term life insurance.
Term life insurance, like its name implies, is life insurance that lasts for a predetermined, specific amount of time. Terms and benefit amounts vary by policy to fit the individual needs of the insured.
Decreasing Term Life Insurance
Decreasing term life insurance is a type of term life insurance that, over the life of the policy, has decreasing coverage. Coverage decreases at a predetermined rate. It is sometimes renewable.
Coverage reductions occur regularly – usually monthly or annually – and terms vary depending on the policy.
Why Buy Decreasing Term Life Insurance?
The idea behind decreasing term life insurance is that since the need for life insurance should theoretically decrease for many insureds as they age, so does the benefit amount of the policy. Decreasing term life insurance may be more useful to someone looking to pay off specific debts as opposed to general debts in the event they should pass.
Examples of specific debts that a policyholder may find a decreasing term life insurance policy useful for include:
Someone may buy decreasing term life insurance at the same time they buy a house. As they pay down their mortgage, their loved ones would typically need a smaller benefit amount as time goes on if the insured were to pass away.
A decreasing term life insurance policy may also make sense for someone who anticipates their children, if they are the insureds, no longer being financially dependent on them – or as financially dependent on them – as they grow older. A policyholder may anticipate their children will gradually be able to more easily provide for themselves as they age. (However, a whole life policy may be a better option for a policyholder who wants to leave behind funds for their children’s college education.)
Someone who plans on accruing an increasing amount of monies in a savings or a retirement account over time may consider a decreasing term life insurance policy an appropriate financial tool. They may see their savings as likely to increase thereby offsetting the decreasing benefit amount.
Similar to how a decreasing term life insurance policy may be appropriate for someone with a mortgage, a decreasing term life insurance policy may also be a financial tool that could help someone who has debts like student loans, auto loans, or personal loans. The policyholder may anticipate having fewer, less burdensome, or even no debts that they would leave behind as they pay them off with age. They may see this anticipated shrinking debt as an appealing reason to have a decreasing benefit amount.
Again, benefit amounts and lengths of term vary by policy.
If you want to know more about decreasing term life insurance or what type of life insurance is right for you, contact a financial advisor or a licensed insurance agent.
Categories: Insurance, Life Insurance, Term Life Insurance