Decreasing Term Insurance

Also known as the mortgage protection life insurance, decreasing term insurance pays off the balance mortgage on the event of death of the insured. The death benefit offered by this policy decreases over the life of the policy. This insurance attracts low premiums and high face value. In simple terms, just as the mortgage balance reduces each year, the limit of insurance also reduces. The principle behind this plan is to pay off any money the insured owes on the event of death.

The face value diminishes with passing policy term while the premium remains fixed throughout the policy term. The extent of coverage diminishes with passing years and so does the payout amount. This type of insurance pays out a lump sum to the beneficiary only on the event of death of the policy holder. This benefit reduces at a predetermined rate over the life of the policy.

Policy term: 5 years to 30 years (5, 10 and 15 years are popular choices)

Policy renewal: At expiry of term, premium increases with age

Premium amount: Fixed amount for the entire contract period (can be paid as single premium or regular premiums)

Reduction in policy payout: Comes about monthly or annually

Maturity value: Policy does not acquire any maturity value; nil payment after term if insured is alive

Surrender value: Not applicable, no money will be paid out on cancellation or surrender of policy

Premium amount is calculated based on the age of the insured and the amount required as coverage. This policy is generally chosen by people who would not want to pass on their mortgage/loan burden to their beneficiaries. The money that the beneficiary will receive depends on how much money is left over the policy. The beneficiary will receive the money only on event of death of the insured.

Example

• Decreased term insurance US$ 10,000
  
  
• Policy period 10 years
  
  
• Reduction in policy payout US $ 1,000 per year
  

If the insured dies by the 7^th year from the commencement of the policy, the beneficiary would receive US $ 3,000 from the policy. If the insured dies after 10 years from the commencement of policy, the beneficiary will not receive any money at all.

This type of mortgage protection life insurance is not recommended as the sole insurance for any person. This insurance is recommended for people who have:

• Low levels of liability (personal loans, house mortgage, house loan, etc)
  
  
• Diminishing needs of life insurance policies
  
  
• Comfortable financial situation thus warranting low insurance coverage
  
  
• Beneficiaries who will benefit from the policy holder
  

This policy is not suitable for people who are:

• Looking for coverage for the rest of their life
  
  
• Not having dependants who will pay the balance liability of the policy holder
  
  
• Looking for maturity benefit after policy term
  

Advantages of mortgage protection life insurance

• Low premium
  
  
• Liability will not pass on to beneficiary
  
  
• Cheap premiums when compared to other term life policies
  
  
• Ideal for people who have a limited budget on mind to pay premiums
  

Disadvantages of mortgage protection life insurance

• Amount will be paid only on the event of death of the policy holder
  
  
• If the policy holder is alive after the policy term, he/she will not receive any benefit at all
  
  
• Covers only essential bills or debts and does cover other essential expenses