What is Decreasing Term Life Insurance?
Decreasing Term Life Insurance, also known as mortgage protection assurance, is one of three major types of term life insurance. This type of insurance provides a death benefit in a specified decreasing manner. Basically the sum that is guaranteed in case of death decreases over the term of the policy. Generally people that want to protect their repayment mortgage in case of death purchase Decreasing Term Life Insurance.
The purpose of Decreasing Term Life Insurance is to pay off any capital that is owed if you die. The premiums for the policy are fixed and don’t increase over time, which makes them more affordable in the short term. However, there is no surrender value at the end of the term or if you cancel the policy early. So, if you live longer than the policy you don’t have any benefits.
As an example, if you have a five-year policy with a $10,000 benefit that decreases by $2,00 each year, at the end of the fifth year your coverage expires. Regular coverage will last until the end of your life on the other hand. Additionally, in the unfortunate case that you do die before your policy is up, your beneficiaries will only receive the amount equivalent to what’s owed on your mortgage, even if your benefits are greater than that amount.
Decreasing Tem Life Insurance is less expensive generally than level coverage, but it’s only recommended as a way to insure financial obligations that will be reduced with time and not as a general policy.