Decreasing Term: It may be cheap, but is it your best option?
If 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 smaller–perhaps just 50 thousand or so–while 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.