Is Decreasing Term Life Insurance Right for You?

Unlike other term life insurance policies in the decreasing term life insurance the death benefit protection actually decreases over time. However the premiums remain the same throughout the policy term period. Such policies are usually preferred by people whose financial obligations decrease over a period of time such as mortgage, personal or business loans where the payment decreases over time. These are purchased to take the burden off of dependents and family members, as they would not be burdened with the payments, for such payments will be adequately covered by the decreasing term insurance policy, in case of the policy holder's death

As is obvious these payments will be made by the insurance company in the event of the holder's death or disability as per the policy terms and conditions set out at the time of issue of the policy. However as compared to similar straight term policies the net cost of decreasing term life insurance can be substantially higher. In a typical case the benefit under a ten year policy may be $20,000 and it may decrease by $2000 every year, so that it becomes zero at the end of ten years. Also typically the premium would remain the same throughout the policy period. Such policies are usually recommended to cover financial obligations like mortgage loans and other types of amortized loans that reduce progressively over time.

As decreasing term insurance is cheaper than straight term insurance it may be used to protect family members from the burden of having to deal with mortgage payments only. But if one wished to provide general financial security for the dependents such a choice may not be appropriate as its basic purpose is to cover only particular loan obligations. In such a case a straight term life insurance policy may be more appropriate. Thus if one has a 20 year mortgage it would be better to purchase a 20 year term policy to cover the total amount of the mortgage. In the case of the holder's death the dependents will have a substantial amount left after paying off the mortgage. Such a policy will provide a better cover at a better price than the decreasing term life insurance policy.