Term life insurance is a type of life insurance that provides coverage for a specific period, typically 5, 10, 15, 20, 25, or 30 years.
The policy owner pays premiums monthly or annually, and the insurer guarantees a payout if the policyholder dies during the covered period.
Term life insurance is often less expensive than permanent life insurance, and it’s an important tool for protecting your finances in case of an unexpected death.
In this article, we will discuss decreasing term life insurance and level term life insurance, what is it? How do they work and what type of policy you should go with.
Decreasing Term Life Insurance
What is Decreasing Term Life Insurance?
Decreasing term insurance is a type of life insurance policy that provides coverage for a specific period, where the policy’s death benefit decreases over time, as the name suggests.
The policy begins with a high face value, which then decreases over time. This type of policy is typically used to provide coverage for a specific debt, such as a mortgage.
This type of policy is also popular among people who want temporary coverage, such as young parents who want to ensure their children are financially protected in case something happens to them.
It typically lasts 10 years, 5 years, 3 years, or even 1 year.
The goal of decreasing-term life insurance is to provide short-term protection for a person’s family in the event of their death.
As an example of how decreasing term insurance works, say someone wants to cover his mortgage so that his wife, can keep the house if he passes away:
They just bought a house with a 30-year mortgage for $300,000, with a 30-year decreasing term life insurance policy of $300,000 death benefit, and lists the wife as the beneficiary.
If he dies in the first year, the wife gets the full $300,000. But if he dies in the third year of the policy, the wife will receive a reduced death benefit of roughly $270,000.
Each year, the death benefit will continue to decrease by $10,000 until the 30-year term has expired.
How Does Decreasing Term Insurance Work?
Decreasing term insurance is a policy where the death benefit payout decreases over time.
This type of policy is often used to ensure a specific debt, such as a mortgage, and the decrease in the death benefit payout coincides with the decrease in the outstanding balance of the debt.
Decreasing term insurance policies are relatively low-cost and provide peace of mind for those who are concerned about their ability to pay off a large debt in the event of their death.
The Advantages and Disadvantages of Decreasing Term Life
There are many reasons why someone might want decreasing term life insurance.
For example, a person might want to buy life insurance to cover a short period (for example, until their child graduates from college).
Another reason could be if the person plans on leaving the country for an extended period and doesn’t want to worry about their mortgage or other debts being paid in case of an unfortunate accident.
So, on the positive side, it can be a good way to save money. If you have a policy with a shorter term, your premiums will be lower.
Plus, if you die before the term is up, the policy won’t expire and your family won’t have to pay extra premiums for the rest of the term making it a more affordable option than traditional life insurance.
On the other side, if you decrease your term too much, your coverage may not be enough in case of an unexpected death.
And, if you increase your term again, later on, you may end up paying more for coverage than if you had kept your original policy terms.
Also, this type of coverage is that it typically has shorter terms, which could make the policy less valuable if you need it in the future
So; it’s important to weigh the pros and cons of decreasing term life insurance before making a decision.
What Is Decreasing Term Insurance Used For?
Decreasing term insurance policies are typically used to provide financial protection for a specific debt, such as a mortgage, during the policy’s term or a short-term business loan.
The policy decreases in value over time, as opposed to increasing term insurance policies, which are more commonly used to provide coverage for a person’s entire life.
This type of insurance is often less expensive than other types of life insurance policies, making it a popular choice for people who need temporary coverage.
And just to name a few: Auto, business, mortgage, and personal loans are examples of debt obligations that a decreasing term insurance policy could cover.
Parents with teenagers may also benefit from decreasing term life insurance, which can provide a large benefit early on to offset expected financial expenses or outstanding tuition obligations.
Can I Add Additional Life Insurance Riders To My Decreasing Term Policy?
If you have a decreasing term life insurance policy, you may be able to add additional riders to your policy.
This can be helpful if you want to cover additional expenses in the event of your death, such as funeral costs or assets left to your beneficiaries.
You should speak with your policy representative or independent life insurance agent about adding riders and make sure that all of the provisions of the rider are met before signing it.
Level Term Life Insurance
What is Level Term Life insurance?
Level term life insurance is a type of life insurance policy that has a set term, such as 10 15, 20, or 30 years.
The policy pays out a fixed amount each year until the insured person dies, at which point the amount paid out equals the policy’s premium.
The policy is usually cheaper than other types of life insurance because the premiums are paid over a longer period.
How Does Level Term Life Insurance Work?
Level term life insurance is a type of life insurance policy in which the death benefit remains the same for the life of the policy.
This means that the premium you pay each month will also be the same amount each month.
This type of policy is generally most appropriate for those who want a fixed monthly payment and don’t want to worry about their death benefit changing over time.
Level term life insurance policies offer the same death benefit for the entire length of the policy, regardless of when you die.
The premiums are fixed and do not change. And, this type of policy is often used to insure a young family’s income until the children reach adulthood.
The Advantages and Disadvantages of Level Term Life Insurance
The advantages and disadvantages of level term life insurance are important to consider if you’re thinking about purchasing the policy.
Here are a few things to keep in mind:
- Lifetime coverage: If you buy a level term policy, you’ll be covered for the entirety of your life. This is great if you don’t want to worry about death or disability.
- Low costs: Level-term policies tend to have low costs, making them an affordable option.
- Varied options: You can choose from a variety of coverage levels and terms, so you can find one that fits your needs perfectly.
- Limited benefits: While level term life insurance policies have lifetime coverage, they may not provide comprehensive benefits in the event of death or disability.
What Is Level Term Life Insurance Used For?
Level-term life insurance is used for a variety of reasons.
It can be used as a savings vehicle, to replace income in the event of a death, or to provide long-term protection for family members.
Level-term life insurance is also an affordable option that can provide peace of mind for families.
Can I Add Additional Life Insurance Riders To My Level Term Policy?
Adding a life insurance rider to a level-term policy can increase your coverage and protect you and your loved ones in the event of your death.
The process of adding a rider is simple, but it is important to speak with an experienced life insurance agent to ensure that the addition is appropriate for your needs and situation.
What Are The Major Differences Between A Decreasing Term And Level Term Policy?
While there are some similarities, decreasing term life, and level term life insurance policies function very differently.
Decreasing-term life insurance policies have a shorter term than level-term life insurance, which means the premiums are lower.
However, if you die before the policy expires, your beneficiaries would receive less money than if you had purchased a level-term policy.
Additionally, decreasing-term policies often have higher surrender charges and greater fees for early cancellation.
Decreasing Term Life
- Death benefit decreases over time
- Usually costs less than level term
- Typically covers decreasing debt and other financial obligations
Level-term life insurance has a longer-term than either decreasing or increasing term policies, but premiums are typically higher.
If you die before the policy expires, your beneficiaries would receive more money than with a shorter-term policy, but less money than with a level-term policy.
Additionally, level terms offer some protection against early cancellation penalties and no surrender charge is usually assessed.
Level Term Life
- The death benefit remains level for the life of the policy
- May cost more than decreasing term life policies
- Can cover a wide range of life insurance needs
Level-term insurance can be the better option if you want to ensure your family would be able to pay for day-to-day living costs and household bills.
While decreasing term cover may be more suitable if you only want enough coverage to pay off an outstanding debt.
In conclusion, it is important to weigh the pros and cons of decreasing-term and level term insurance policies before making a decision.
Both policies have their benefits, but it is important to choose the policy that is right for you and your family.
Reach out to Noel Insurance today at 877-817-2583 or complete the online form to the right. We will consult with you to find the best policy for your specific needs.