Decreasing Term Life Insurance

Use Policy To Leave Debt Free Home

Some life insurance companies offer a decreasing term life insurance policy which provides for the eventuality where ones need for life insurance is more likely than not to decrease rather than increase.

This decreasing term life insurance policy would last for a specific number of years. The premium would remain level and the death benefit would decrease in a uniformed manner over the duration of the policy.


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Decreasing Term Life Insurance Explained

Decreasing term insurance is therefore a term life insurance policy in which the face amount decreases yearly but the premium remains the same. This is very inexpensive term life insurance. Let us, as an example, consider a situation where you have just bought a new home.

If you borrowed money to purchase this home you have a mortgage. In the initial years the majority of your monthly mortgage payment is applied to interest and what is referred to as a sinking fund.

This fund is money put aside to assist in wiping out your mortgage debt at a future date. Very little of your payment is applied to principal. This, however, gradually changes as the years go by and more and more money is applied to principal each year

…as the balance owed, that is the principal owed, decreases. Each year there is less need for life insurance to cover this particular need. The face amount, or death benefit of the policy also decreases each year as the need for this decreasing term life insurance decreases.

Let us say, for example, you have a 20 year mortgage on your house. In the nineteenth year there will be very little owed on your mortgage loan. The amount of decreasing term insurance on your life would be close to that amount…just sufficient to pay off the balance owed.

This type of insurance is very inexpensive and I often encourage people I know who purchase a home with a mortgage to buy such a policy.

Decreasing term insurance can be applied to many other situations as well. It can be used to assure that a child’s college education will be completed even if the parent who is paying for it is not around at the time of completion. It can be used to cover other personal or business debts as well.

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