What is Decreasing Term Life Insurance?

Is Just Taking Out Mortgage Protection Life Insurance Enough?

Nov 5, 2009

Decreasing term life insurance is just one term coverage option. This is often used to protect a mortgage. Is this a good deal or will consumers need more protection?

Consumers looking at their insurance needs may think that the hard work is done once they choose between permanent and term products. But, each of these options has its own variations. Term insurance, for example, can be arranged with level or decreasing cover. Many opt for a term that decreases over time simply to protect their mortgages. How does this work and what are the pros and cons?

What is the Difference Between Level Term and Decreasing Term Insurance?

In both cases these policies will be taken out for a set period of the time (the "term"). During this time the policy holder is given life insurance protection which then ends at policy close. But, the amount that might be paid in the event of death will vary. For example:

Choosing which option to take is important here. Not only will it potentially affect the cost of the coverage given, it will also impact on the insured sum that may be paid if a claim is made.

Why do Consumers Choose Decreasing Term Insurance?

This may be simply based on costs and needs factors. The fact that this variation on term insurance will pay out less as the years pass means that it may often come with lower premiums than a standard level term policy.

The insurance needs of many people will go down over time. As they get older, their families become financially independent and they repay their mortgages, then they may feel that they don't need as much insurance coverage. This kind of policy is often used to give maximum protection during years when it may be necessary with minimal coverage thereafter.

Using a Decreasing Term Policy as a Mortgage Protection Solution

This kind of term policy is often sold as a way of insuring a mortgage loan in the event that the individual/one of the individuals responsible for the loan dies. If a mortgage decreases over time then it will take less money to pay it off as the years pass. This kind of insurance may be targeted at giving enough to do this, but just enough, for the life of the policy.

Things to Consider Before Taking Out Decreasing Term Life Insurance

This solution may suit some consumers very well. But, it may not be the best solution for others. For example, a young couple with no dependent children may find that all they need is coverage to deal with their mortgage.

Later in life, however, when they have a family, then their needs from life insurance may be very different. At this stage, paying off the mortgage is just one of the factors to consider and a level term policy may, therefore, be better as it can be set up to provide wider financial benefits.

This is an individual decision and it may be worth thinking about insurance needs as a whole before choosing which policy to buy. Working out how much coverage to buy is also a key factor to consider.

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