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Decreasing Term Insurance

Candlefocus Editor
Decreasing term insurance is a type of life insurance that provides protection by decreasing the death benefit each year over a pre-determined period. The main purpose of decreasing term insurance is to protect personal assets in the event of the death of the policyholder, and it is often required by lenders to guarantee the remaining balance of a loan upon the death of the borrower. It is similar to term life insurance in that it provides a death benefit, but differs in that the death benefit decreases over a pre-set period of time.

While the death benefit decreases annually over time, premiums associated with the policy also decrease over time. This type of policy typically mirrors the amortization schedule of the mortgage it is taken out for, with the death benefit decreasing alongside scheduled payments on the loan. Usually, the death benefit continues to decrease until it is equal to the current balance of the loan.

Another advantage of decreasing term insurance is that it is less expensive than traditional term or permanent life policies, making it an attractive option for those on a budget. The amount of the premium is determined by the insurer after considering factors such as the applicant’s age, medical condition, and other lifestyle choices.

As with any type of life insurance policy, it is important to carefully evaluate your personal circumstances before making a decision to purchase a decreasing term insurance policy. Be sure to read the contract closely to ensure you understand the specific requirements, benefits, and policy restrictions of your chosen policy. It is also important to determine if the death benefit will adequately cover your financial obligations, such as a remaining loan balance, over the policy’s duration.

Overall, decreasing term insurance can be a valuable financial tool when used thoughtfully. It can help protect the lifestyle and financial security of your family in the event of your death. It can also be less expensive than other life insurance policies, making it attractive to those on a budget. When paired with a carefully evaluated amortization schedule, decreasing term insurance can provide asset protection and peace of mind for years to come.

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