What is decreasing term life insurance?
In contrast to ‘whole life’ or ‘permanent’ life insurance policies, term life insurance lasts for a pre-arranged period of time, agreed between the customer and the insurance provider. These policies only provide cover for the duration of the agreed term. Once this period has expired, the customer will no longer be able to make a claim or receive a payout.
One of the most common forms of term insurance is called ‘level term’ and simply involves paying a flat rate every month to the insurer. In the event of death, a fixed sum can be claimed by the insured’s family, as long as the policy requirements have been met. The cost and payout of this kind of policy is determined by the amount you want to leave for your family and the amount you can afford to pay monthly.
Decreasing term life insurance explained
Decreasing life insurance, much like level term policies, involves paying a fixed amount to the insurance company each month. However, the amount that you will be able to claim will decrease as the policy continues.
Although this may seem to defeat the purpose of life insurance, there are a number of reasons why people choose this type of policy. The primary explanation is simple: monthly repayments on a decreasing term policy are considerably lower. So, if you have a limited budget – or simply want to invest your money elsewhere – it may be more practical to opt for an insurance plan that requires lower monthly payments.
Why choose decreasing life assurance?
Aside from the comparatively low costs, another reason why some people might choose a decreasing life insurance policy is that their financial obligations are likely to decrease as they get older.
For example, those with mortgage considerations might expect to have paid off their mortgage by a particular date – in which case they will not need to worry about guaranteeing a large payout for a surviving partner or dependent children to keep up mortgage repayments. In this instance, it makes little sense to pay high premiums for a lump sum that will ultimately not be needed, when the money could be better spent on enjoying retirement.
If you’re considering taking out a decreasing life insurance policy, TotallyMoney can help you to find one that provides the best value and security for your family – why not compare quotes today?