Many consumers see life insurance as a specific product. At most, they may be aware that there are two basic types: life insurance and life insurance for life.
But the reality is that there are many different types of life insurance policies. In fact, there are so many that it is possible to adapt a life insurance policy to either a general need or even a very specific purpose.
There are also different types of insurance in the area of life insurance. One that most consumers do not well understand ̵
It's worth knowing about, just because it's a police type that can meet a need you have.
What is Reducing Lifetime Insurance?
As the name suggests, declining life insurance is term life insurance at its core. This means that it is a policy that is designed to last for a very specific number of years.
And unlike entire life insurance policies and other cash value policies, the maturity does not accumulate cash value. It is pure life insurance, which is why it is so much cheaper than whole life insurance policies.
But what distinguishes decreasing life insurance from life insurance is the decreasing factor .
That is, the death benefit of politics diminishes over time. The police type realizes that you may need more coverage early in the semester than you will in future years.
Like life insurance at levels, reduced life insurance policies typically range from five years to as many as 30 years.
Typically, however, the death benefit will decrease each year that the policy is in force.
For example, you could start with a $ 500,000 insurance policy that reduces life expectancy by 20 years. The $ 500,000 death benefit is paid if you die within the first year the policy is in effect. That benefit will decrease by about 5%, or $ 25,000, each year thereafter.
This means that 10 years after the plan, the death benefit will drop to $ 250,000. The death benefit automatically disappears all the way down to zero after 20 years.
Decreasing life insurance recognizes the fact that the need for life insurance may decrease over time.
For example, you may take a policy that begins with a high death benefit while you are young and has a combination of many financial commitments, but little in the way of financial assets to meet them. But over time, as your asset base grows and your financial commitments decrease, so will your need for life insurance.
Reduced life insurance is designed to suit that type of consumer profile.
What reduces the life insurance period?
One of the obvious contradictions with a reduced life insurance policy is that while your death benefit decreases, so do your annual premiums.
You can take out a 30-year life insurance policy with a declining term, and while your death benefit will decrease slightly each year, your premium will remain fixed throughout the period.
Interestingly, this means that a decreasing thermal life insurance premium will be lower than for a level of life insurance premium. This is because the insurance company's financial obligation decreases the longer the insurance is in force.
For example, while a $ 500,000 20-year life insurance policy requires the insurance company to pay the full $ 500,000 death benefit 10 years into the term, a decreasing term will require payment of only $ 250,000 after 10 year.
The long and short thing is that the premiums for a reducing maturity will be significantly lower than it will be at the level based on the initial death benefit of the policy. However, when the death benefit decreases, the premium paid with a decreasing maturity will be higher in relation to that death benefit.
For example, let's say you take out an insurance policy with a reduction term of $ 500,000 over 20 years. The annual premium is $ 500, which looks like a pretty good deal for $ 500,000 in coverage. But after ten years, the same premium pays for a death benefit of only $ 250,000. And in year 18, it only pays $ 50,000.
In this way, a decreasing life insurance is cheaper during the first years of the term, but gradually more expensive with each passing year. However, the cost to the full-time police is still lower than a level policy with the same death benefit.
Exactly what the premium will be on an insurance policy with declining futures will be determined by all the same factors that affect any other type of life insurance coverage. These include the conditions of your health, the health of your immediate family members, personal behavior (such as tobacco and alcohol consumption), your profession, your driving record and even your hobbies.
When does reducing life insurance make sense?
Reduced life insurance is most meaningful when you either anticipate a combination of increased financial assets and reduced financial needs in the future, or if you are looking for coverage for a very specific purpose.
For example, suppose you are 30 years old, you have a young family (which means high financial obligations), but you are in a high income income that is likely to enable you to grow your asset base significantly over the next 20 years.
In response, you are now taking out a $ 1 million insurance policy to cover your family in the event of your premature death. But since you expect to have amassed more than $ 1 million in 20 years, you will basically be self-insured, and the need for life insurance will either decrease significantly or even disappear completely.
Other examples are where the need for life insurance is very specific, but temporary.
- You have a large mortgage on your house, say $ 500,000. As the loan will be repaid over 30 years, you will receive an insurance policy of $ 500,000 to pay off the debt if you die at any time before the mortgage is fully paid.
- You carry a large amount of student loan debt. If you have a $ 100,000 student loan, which is to be repaid over 15 years, you may want to take out a $ 100,000 lifelong insurance policy for $ 100,000.
- You have a significant number of other debts, such as personal or business debts, which will be paid off over a certain number of years. You match these obligations with an insurance policy with a reduced term.
- You may already have a life insurance policy for base as a lifetime or a 30-year insurance policy, but want to supplement your death benefit with a decreasing term life insurance policy to provide additional funds for your children until they reach the majority. A 20-year life insurance policy with reduced visibility can get the job done.
As you can see, all of the above needs are very specific. Reduced life insurance is intended to work only in very specialized situations.
There may be others that are unique to your own personal financial profile that decreasing maturity will cover well.
Why you may want to avoid reducing life insurance  As you can see from the basic structure of life insurance reduction, it is an even more temporary type of coverage than the level. Not only is the term of the insurance limited, but the death benefit is steadily declining.
The obvious limitation is that a life insurance reduction is generally not appropriate as a life insurance policy. Not only will the death benefit eventually go to zero, but it will also be minimal during the last years of the period.
For this reason, a reduced life insurance policy is not recommended if you have a more permanent need for life insurance reporting. For example, if you have young children and your greatest need for life insurance coverage will be over the next 15 to 20 years, you may still want to go with a 30-year level policy so that there will be additional funds for your spouse even after that. your children have been liberated.
You may also want to consider using both level terms and decreasing terms in combination. For example, you can opt for a $ 250,000 term policy for 30 years, but add a 20-year reduction term to cover the dividends of your home and your children reaching adulthood.
The best way to buy reduced life insurance  Reduced life insurance is one of the insurance products belonging to the category for special management. This is because it is a unique type of policy that only works in a limited number of circumstances.
For that reason, it is very unlikely that you will be able to get a reduced life insurance through the many life insurance providers at a discount. These companies offer almost exclusively life insurance at levels, and only to young, generally healthy applicants without special needs or restrictions.
Life insurance reduction is best purchased through an independent life insurance broker. This is because we work with many different life insurance companies and know which ones specialize in this unique type of insurance products. We may even be able to recommend an alternative insurance policy or use a diminishing term in combination with another type of insurance. Due to the unique nature of reduced life insurance, this is often a winning combination.
Instead of doing a dedicated search to find an insurance policy with a reduced term that works for you, instead, our experience puts it to work for you. Let us find the decreasing visibility policy – or some other unique policy type – for you, which will help you save both time and money.
* While we do our best to keep our site up to date, you should be aware that "up-to-date" information about this site, such as quotes, or relevant company details, may only be accurate from the last day of editing. . Huntley Wealth & Insurance Services and its representatives do not provide legal or tax advice. Contact your own legal or tax advisor.