Term life insurance is a plan wherein a person's life is covered for a limited duration, with a fixed amount of monetary value. It is based purely on the concept of survivor benefits, which is the payment received by the beneficiary of a policy, in case the insured person passes away. It is also used to cover the financial responsibilities arising after death of the policy holder. The benefit 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 insurances, namely, decreasing term life insurance, level term life insurance, and renewable term life insurance. Further, we will discuss benefits, limitations, and the policy details of the decreasing term life plan.
Benefits and Limitations
In thts plan, death benefit and the payout amount of the insured decrease 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. Most life insurance policies pay a cash settlement if a policy is either surrendered before the maturity period, or matured before the death of the insured. This policy however, does not pay any such settlements.
The premium paid on these policies are usually cheaper and fixed, and the payments can be made anytime before the policy expires.
The plan 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 such 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 existing policy at the time of conversion. Among these financial conversions, mortgage loans are most preferred.
This plan can be converted into a mortgage assurance loan by making the remaining unpaid balance of the mortgage loan, equal to the amount of coverage provided in the life insurance plan. Further, the plan is either converted as a rider to an existing policy, or is filed as a separate policy. Mortgage insurance is usually issued 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 death of the policy holder.
This plan can also be converted to a credit insurance policy, which enables the 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.
In conclusion, decreasing term life insurance is one of the best options available with cheap premiums, steady rates to protect your mortgage investments, and ensures financial stability to those left behind in the event of your death.