Decreasing Term Life Insurance

Is A Decreasing Term Life Insurance Policy Right For You?

Some will tell you that a decreasing term life insurance policy is perfectly suited for your situation, while others will tell you it's not a good deal at all. Insurance policies are a lot like politics in that there are always pros and cons, and always good arguments both for and against any given type of policy.

There are a several things to consider if you are on the verge of signing up for an insurance policy. What is it you're trying to accomplish, will the policy accomplish that, and is the policy affordable? In other words, is it worth the expense? We often purchase life insurance to gain some peace of mind. There's absolutely nothing wrong with that. It's nice to know that one's spouse and family will be provided for should the worst happen. Life insurance is different in that way from home insurance and auto insurance policies which in many cases we have to purchase.

As far as life insurance policies are concerned there are several basic types, but for the sake of this article let's only consider three types, straight life insurance, term life insurance, and decreasing term life insurance.

Straight Life Insurance - Most straight life insurance policies (there are many variations, so know what you're getting) insure you for a specified amount, guaranteeing that amount will be paid, while at the same time your premiums will remain constant over the life of the policy. You might take out a policy in your 20's and pay premiums on it all of your life, with your spouse or estate reaping the eventual reward. Many life insurance policies accumulate a cash value as they mature, so if you opt out of the policy after a number of years you'll can cash it in and get some money back. It's not exactly the very best of investments, and not even a particularly good one, but it's still an investment and in some instances makes good sense.

Term Life Insurance - Term life insurance is a policy that is good for a set number of years. At the end of the specified time the policy expires. Term life premiums are generally much lower than straight life premiums, particularly if you take out a term life policy, say for 10 years or 20 years while you are younger. Term life premiums usually become more expensive as we get older, but still can be an attractive alternative to straight life for many. If you die at any time the policy is in effect, your estate gets the amount you were initially insured for.

Decreasing Term Life Insurance - Decreasing term life insurance is somewhat of a different breed of cat. The premiums can be quite inexpensive, but as time goes by, the amount the policy pays out will decrease. Decreasing term life insurance is often sold as an alternative to mortgage insurance. If you have a 20 year mortgage on $300,000 house and you take out a $300,000 decreasing term life insurance policy, and die 19 years later, the amount the policy is good for should theoretically be enough to pay of the remaining mortgage principal on your house, which may only be a few thousand dollars, but no more. Thus it works much like mortgage insurance, which pays of the balance of the mortgage in the event of your death.

Do The Math - One problem with decreasing term life insurance is that the premiums remain constant over the life of the policy, so you are in effect paying the same each month, but paying for less coverage each month. This may or may not be satisfactory, depending upon your goals and your situation. No matter what type of insurance you choose, it's good practice not to just listen to what an advertisement claims, or your insurance agent, but first do the math yourself, and see what makes sense. Then talk to your agent.