Level term life insurance gives you a particular amount of death benefit for a particular period of time, which is called the term. Decreasing term insurance works differently. Here is why it is usually not your best buy:
What is Decreasing Term Life Insurance?
Unlike level term insurance, in decreasing term the premium stays the same, but the death benefit decreases. For example, one type of decreasing term is "mortgage insurance" which is insurance that pays off your mortgage in case of the death of the insured. That may seem like a good protection to your family. However, since you are paying off that mortgage with every monthly payment, that means that the value of that insurance death benefit is decreasing every month even though your payment is the same.
Why isn't Decreasing Term LifeInsurance Your Best Buy?
As previously stated, the premium stays level, but the amount of your death benefit decreases each year. Additionally, if you have mortgage insurance, the beneficiary of the policy is not under your control. The money usually goes directly to the mortgage holder and not your family, even if that isn't in your family's best interests.
How Level Term is a Better Deal
With level term life insurance the premium is always the same and you will always get the same amount of death benefit for the term of the policy. Moreover, you also get to choose:
- The amount of death benefit you need.
- The term length, usually 10, 15, 25 or 30 years.
- What the money is used for.
In addition to that, level term is usually offered at a better premium price than decreasing term because level term is a offered by many companies so there is a lot of competition. More competition for your business means there is price competition too.
What Can You Do?
When you need coverage, talk to an independent agent and make sure you understand what you are buying. There's generally no reason to purchase a decreasing term policy, so protect your family with a level term policy.
Many banks offer mortgage insurance, if it's not required, get the insurance yourself. (If it is required, find out if you can purchase the coverage yourself!) This will give your beneficiary more flexibility.
The Bottom Line
If you have mortgage or other decreasing term, you may not have the life insurance which best meets your family's needs. Who can help? Your best guide is an independent life insurance agent who is not tied to selling a particular life insurance product and can help you evaluate what insurance you already have as well as help you choose and apply for the life insurance you really need.