Decreasing Term: It
may be cheap, but is it your best option?
you are looking for nothing more in your life insurance policy than
the cheapest possible price, you can always check into Decreasing
Term. Only, remember, we often get what we pay for.
Decreasing term is one
of the least expensive forms of life insurance because the odds
are in favor of the company. You can purchase a very high face amount
for a very low price. Each year that face amount drops although
your premium remains level. Long before the end of the term, the
face amount is cut in half. And by the time the term expires, the
face value is zero.
Why would a person purchase
a decreasing term? One reason is that it is a type of policy often
marketed through the mail. Since no agent will be involved in the
sale, the company sends charts and fine print information with the
application. Many people who purchase decreasing term really do
not understand the terminology of life insurance.
Another reason people
have decreasing term is because they got it through their banks
under the label "mortgage life insurance." Nearly all mortgage insurance
is decreasing term because the bank sets it up so that the face
value at any given point is very close to the amount you owe on
a mortgage or other large debt. Because the premium is so low, it's
rather easy to convince people to simply include the payment in
their mortgage payment. By the time the mortgage is paid off, the
premium will stop and the insurance itself will simply be gone.
Of course, if you die before the debt is paid, the bank will receive
the benefit of the policy. Usually there will be little or no funds
remaining to go to your loved ones beyond paying off the debt.
If you have a large mortgage
or other large debt, many banks will require that you protect the
investment with some type of insurance, and they will usually offer
mortgage, i.e. decreasing term insurance. Fortunately, there is
a better way.
The simplest life insurance
you can buy is level term life. The word "level" means both the
face value and the premium will stay the same for the life of the
term. At the end of the term your insurance will expire as it is
neither practical nor affordable to renew it. However, if you have
made other plans for permanent life insurance and if you have a
retirement plan, you will no longer need the term life insurance.
If you want life insurance
that will protect you beyond the needs related to a single debt
and will last your entire life, there is a better way even than
term. You can purchase a universal with a term rider. The universal
can be smallerperhaps just 50 thousand or sowhile the term rider
can be a high enough face value to pay off your major debts. If
you die while the primary policy and term are in force, you loved
ones will have the entire benefit to pay the debts and adjust to
life without you. Once the debts are paid, and the children are
grown, you will probably not need a large policy.
Setting up a universal
with a term rider is not something every agent knows how to do although
most companies that sell universals can also offer the riders. It
is also not something you want to do on your own. However, if you
ask questions and get a skilled, knowledgeable agent, it is a combination
that will give you life-long peace of mind.