Reducing life insurance is a special form of life insurance that is designed to cover a loan obligation. It is rare for life insurance agents / brokers to sell this type of life insurance. Instead, loan managers such as mortgage brokers and R&D managers at car dealers are the people who traditionally sell this type of life insurance.
What decreases in decreasing maturity insurance? The death benefit matches the payment of the loan, so for each payment of the loan balance, the death allowance decreases. However, the cost of a declining maturity policy is the same. So instead of having a periodically increasing premium for the same death benefit as annually renewable forward insurance, decreasing life insurance has the same premium, but an ever-decreasing death benefit.
Here is a graphical comparison of decreasing life insurance and annual renewable life:
Personal / specific asset protection
The spirit of declining life insurance is a specific protection in the economic interest. For example, suppose you need to borrow money to buy a new car. You will borrow $ 30,000 to make the new car purchase. If you die before repaying the loan, your spouse will be responsible for repaying the loan.
One way to protect your spouse's financial interests is to buy a shorter lifespan when you take out a loan. If you die before repaying the automatic loan, the loan will automatically repay for you. Your spouse will then own the car for free and clear away all debt obligations.
It is also common to find a decreasing maturity on mortgages. If you choose a declining life insurance option on a mortgage, you know that if you were to die before paying off the mortgage, your spouse and / or loved ones will not have to continue making income. Instead, the declining life expectancy pays off on your death.
Example of a Decreasing Term Insurance
Suppose you buy a house and will need to borrow $ 300,000 as part of the purchase. When applying for a mortgage, the broker asks if you want a decreasing maturity policy. Please note, the mortgage broker will rarely refer to this as a declining term policy. Instead, he / she will likely refer to it as a function or protection to pay off a mortgage if you die.]
You will pay an additional $ 65 per month as part of your mortgage to receive this benefit. This monthly payment of $ 65 will not change during the remainder of your mortgage, but each month when you make a mortgage and reduce the principal amount on your mortgage, the death benefit you have for that $ 65 will decrease. The death benefit will decrease by the amount that the repayment balance reduces on your mortgage.
If you die before paying off your mortgage, the declining life expectancy will pay off the mortgage for you. This will leave your spouse, or whoever you want the property with when you travel with the house without having to pay the mortgage.
The Benefits of Reducing Longevity
The biggest benefit of reducing life expectancy is its ability to prevent loss of assets due to debt default when a borrower dies. This will protect the financial interests of a spouse or other loved one, as they do not take responsibility for repaying the debt.
Another benefit of reducing the insurance period is the automation it uses. You can often get approval for the coverage when you complete the purchase and there is no long insurance process. Reducing maturity also reduces the debt obligation almost immediately and avoids the need for a beneficiary to handle the repayment process. that death does not risk losing a house or other major financial purchase due to inability to pay the loan.
Disadvantages of reducing life expectancy
Lowering the term insurance is quite expensive life insurance. Most individuals will find that they can acquire the same or more death benefits for a much lower premium with a traditional lifetime policy.
The declining sight policy is permanently linked to the debt obligation and cannot cover another need for death benefits. If you repay the loan early, the decreasing term will end. If you borrow again, you will need to choose another declining term policy. you cannot include an existing declining maturity policy for a new loan. This is especially important in a refinancing. Refinancing debt will terminate an existing policy for reduced maturity and require you to choose a new one with the newly issued debt.
Although the insurance process for a reduced maturity policy is effective, it requires you to be able to respond satisfactorily. some questions. If you are unable to do this, you may not be entitled to a reduced visibility policy and will not have the protection it provides.]