There are two broad, basic forms of life insurance. There is permanent, whole-life insurance that generally builds value and remains in force as long as premiums are paid. There is also term insurance that is intended to be in force for a specific period of time. Term insurance is often less expensive than permanent insurance, and can be purchased in level term, increasing term, and decreasing term coverage. Level term coverage remains the same over the course of the term of the coverage. Increasing term coverage provides increasing coverage over the lifespan of the policy. But what is decreasing term insurance and when may it be of most value?
Decreasing term insurance starts at its maximum coverage and decreases over the length of the policy period. For example, a $500,000, 20 year decreasing term policy may start by providing $500,000 of coverage in year one, and by year five reduces to $375,000. By year ten, halfway through the term, the policy may also reduce in coverage by half to $250,000. At year 15 coverage may reduce to $125,000 until it finishes out its term at 20 years. This is only a sample of how coverage may reduce over the term period.
Decreasing term insurance can be valuable in many situations. It can help cover the balance of a mortgage payments over 20 or 30 year mortgages. As the mortgage is paid down, coverage is reduced at a similar pace. Young families can find decreasing term insurance valuable in obtaining a large amount of coverage while the children are at their youngest. In smaller amounts, decreasing term insurance can be used to insure car payments will be covered in an untimely death. In general, decreasing term insurance allows you the flexibility to only pay for the coverage you need as time progresses, and your financial obligations lessen.
The appropriate type and amount of life insurance varies by family, circumstances, age and budget. It is one of the reasons working with an independent insurance agent can be so valuable. We work with a variety of insurance companies and can seek out the most valuable coverage for your specific situation. Do you have the right coverage? Contact one of our independent insurance agents for a no-cost, no-obligation life insurance review and quote today. We look forward to assisting you.