Friday, January 27, 2012

Decreasing Term Life Insurance

Term life insurance is a type of insurance, wherein a person's life is covered for a limited duration, with a fixed amount of monetary value. This kind of policy is based purely on the concept of death benefits. Death benefit is the payment received by the beneficiary of a policy, after the passing away of the insured person. This type of insurance is used to cover the financial responsibilities arising after the death of the policy holder. It is usually paid as a fixed one-time amount, or in the form of a pension to the beneficiary. There are three types of term life insurance, namely: decreasing term life insurance, level term life insurance and renewable term life insurance. Here we take a look at decreasing term life insurance.

Decreasing Term Life Insurance

In case of a decreasing term life insurance, the death benefits of the insured decreases over the duration of the covered period. The death benefit usually comes down to zero, when the term of the policy ends. Still, the value of the death benefit, is much higher compared to the initial premium paid. Every life insurance policy pays a cash settlement, whenever a policy is surrendered before its maturity period. Decreasing term life insurance does not pay any such settlement, as they have no surrender value. Surrender value can be generally defined as the amount of cash a person receives, if a policy is prematurely terminated. In most life insurance policies, the value of the benefit to be paid, in case of an early death, remains the same throughout the term. In case of the decreasing term life insurance policy, the payout amount decreases with a decrease in the maturity value of the policy.

Most life insurance policies have large payouts when a policy matures before the death of the insured. There are no such payouts, in decreasing term policies. The premium paid on these policies are usually cheaper and payments can be made anytime before the policy expires. In other insurance policies, the premium and the face values remain the same, until maturity. However, in case of the decreasing term life insurance policy, though the premiums remain the same throughout, the value of the benefits decrease, as the coverage period increases. As such, level term insurance policies pay a fixed amount of money, regardless of the time of the death of the policy holder. However, in a decreasing term life insurancd policy, the value of the payout amount, will reduce with the passage of time.

Decreasing Term Life Insurance Policy

Taking out a decreasing term life insurance policy is beneficial as it protects the financial obligations which reduce with time, such as, mortgages, educational loans and other amortized loans. A conversion clause is commonly found in most decreasing term life insurance policies, allowing the policy holder, to exchange the existing policy with a straight or cash value life insurance policy. However, the converted benefit cannot be valued at more than 80% of the amount of the decreasing term life insurance policy, at the time of conversion. Among these financial conversions, mortgage loans are most preferred.

A decreasing term life insurance can be converted into a mortgage assurance loan, by making the decreasing unpaid balance of the mortgage loan, equal to the amount of coverage provided in the life insurance policy. This policy is converted as a rider to an existing policy or is taken as a separate policy. Mortgage insurance is usually taken out as a precaution to protect the mortgage investments of the policy holder. This policy cover makes sure that a lump sum amount, equal to the remaining mortgage debt, is paid to the beneficiary, at the time of the death of the policy holder.

A decreasing term life insurance policy can also be converted to a credit insurance policy, which enables a policy holder, to pay off his credit loans after his death. The payment goes directly to the lender, without making his dependents, a party to the whole process. The face value of this policy decreases proportionately, with the outstanding loan amount as the loan is paid off over time, until both the values reach zero.

Decreasing term life insurance is a great way to protect business partners and other dependents from facing financial instability, caused as a result of the death of a policy holder. The value of the insurance goes down as the actual mortgage is paid off and the policy value decreases with the passage of time. But still, these policies have the cheapest premiums, with steady rates that do not fluctuate to a great degree. Decreasing term life insurance is one of the best options available, to protect your mortgage investments, and ensure financial stability to those left behind after the unfortunate event of your passing away.