Determining If Fixed Or Decreasing Term Life Insurance Is Right For You

Ross Quade | Term Life Insurance | 15 May, 2014 | No Comments

Once you have made the decision to give your family the peace of mind and stability that they deserve in the case that you pass away prematurely, the following step is to choose what sort of life insurance fits your needs. If you have decided to purchase a term life insurance policy then your decision-making has not ended there, as you must now decide what type of term life insurance works for your family. There are two main types to choose from—fixed or decreasing term life insurance.

What is Decreasing Term Life Insurance?

This type of life insurance gives its user coverage for a specific time period, which is called a fixed term. However, the amount that is paid out under this life insurance policy decreases throughout the course of the coverage. If you live past the term of this type of policy then your payout sum would be zero.

When to Use This Type of Life Insurance

Yahoo Small Business suggests using this type of life insurance in order to cover small children or family members who have a critical health condition. It is considered best to choose a decreasing term life insurance policy only in special circumstances or during times of financial instability because of the substantially lower costs. This type of life insurance is also useful in order to cover the outstanding amount of mortgage left at the time that you pass away. This is because the sum that is paid out would decrease over time and since an outstanding mortgage would also decrease, this type of life insurance makes sense. In fact, many mortgage loans require that the borrow take out a decreasing term life insurance policy so that the repayment of the loan is guaranteed, even if the borrower passes away before the loan reaches full term.

What is Fixed Term Life Insurance?

This type of life insurance is arguably the most simple and straightforward method of obtaining a life insurance policy. The coverage given for a fixed term life insurance policy is for a specific number of years. If you pass away before this time is up then a lump sum will be paid out to your family. However, if you continue to live past the fixed term of your life insurance policy then no payment will be given upon your death. In other words, the benefit of a fixed term life insurance policy is only payable if you pass away before the fixed term of your life insurance expires.

When to Use This Type of Life Insurance

Fixed term life insurance is the cheapest and most popular type of life insurance on the market. It can be used to cover a variety of needs and situations. For example, if you want to have coverage for your child up until they graduate from college than a fixed term life insurance can be perfect for your situation. On top of this, due to its affordability factor many families who are struggling financially choose to obtain one instead of a more expensive whole life insurance policy.

Things to Keep in Mind When Choosing the Right Type of Life Insurance

It’s important to keep in mind that a decreasing term life insurance policy provides you with a benefit that has a diminishing value. Because of this, it is most often used in order to protect mortgages. On the other hand, a fixed term life insurance policy is more common as the lump sum will be given out to your family if you pass away at any point during the policy’s term.




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