Decreasing life insurance mortgage protection policies
Of the three types of term life insurance policies that are most common, decreasing term life insurance is the most popular for those that are interested in protecting a mortgage or debt. As the amount of the debt decreases, so does the amount of coverage provided by the insurance contract. This is a good option that provides low premiums for specific time sensitive needs.
With a regular term life insurance policy a predetermined amount of money will be paid to the beneficiaries upon the death of the policyholder until the policy has reached the end of its term, at which point the policyholder would no longer be covered. The term for such a policy can be as much as 30 years. A decreasing term life insurance policy is similar in that it will expire at some point but the difference is that the death benefit would decrease over time, either monthly or annually. The fact that the death benefit decreases may not sound like a good thing but it all depends on your point of view. The reason most people get this type of policy is to make sure that any large debt would be covered if they were to die prematurely.
Decreasing term life insurance policies have a level premium that remains the same and a death benefit that gradually decreases every year over the duration of the contract. This form of coverage is primarily used when the amount of protection lessens over time, as is the case with most debts that are paid on installments and is to ensure that the debt is paid should the insured die prematurely before the debt is repaid.
One of the most common uses for this type of coverage is to pay off a mortgage or home loan. Because of this, a decreasing term policy is often referred to as mortgage protection insurance. It works great in this situation because a home loan is decreasing month by month every time you make your payments. With a decreasing term life insurance policy the death benefit of the policy would be decreasing at the same rate as your mortgage but would be enough to pay off the mortgage if you were to die prematurely. If you were to pass away, eliminating a large monthly payment such as a mortgage would go a long way to helping your family be able to pay the bills and meet their monthly obligations.
This type of policy is not renewable as the death benefit at the end of the term is zero dollars. Now, while this is the least expensive form of term insurance, remember that the premium is based solely on purely protecting the debt and the costs of this type of coverage are vastly different than standard insurance policies that are designed to provide a death benefit to a beneficiary. With these types of policies, the beneficiary is generally a creditor.
