Life Insurance: Stage Term Vs. Decreasing Term
Deciding what type of life indemnity policy is not a particularly enjoyable task, but an important one nonetheless. There are numerous types of policy that are advertised, such as universal life insurance, whole life coverage, permanent cover, and term life insurance, but even when these are decided upon there are often more complex components to address.
Without ignoring that choosing life indemnity should not be done in a hasty manner, this article aims to highlight the differences in point Term and Decreasing Term life indemnity on a simple level, and which type of cover may be most suitable for you.
Initially, it is believably best to be completely clear of the meaning, ‘Term Life Insurance’. Term Life insurance (sometimes called: ‘Term Assurance’) is a policy which covers a set amount of years for a premium (or cost - that could be paid monthly) that is stipulated and agreed upon at the outset. Term policies do not accumulate cash value and tend to pay out only in the event of the policy-holder’s death.
Level Term Life indemnity is essentially the simplified policy similar to the above. A price will be set out through the policy-holder and insurer, such as a monthly premium, as well as the amount to be paid out, for example $50,000 to pay-off a mortgage.
When the policy holder dies five years or 15 years into the term, they will still be eligible for the full $50,000 providing the claim is produced within the term set at the outset, and all full payments have been produced on time.
For added flexibility for the customer, some life indemnity companies offer the option of Decreasing Term Life indemnity instead. This differs to a level policy since the pay-out is set up to decrease year on year, so when $50,000 might be owed in the first year, the policy-holder may just be eligible for $25,000 five years down the line.
Such a policy might be suitable for a policy holder who is paying off their mortgage in chunks year on year and who, for example, would have significantly less to pay off five years on.
Generally, Decreasing Term Life indemnity is often favoured because of cheaper premiums for a satisfactory amount of cover. Whereas, point Term Life indemnity will ensure a lump sum payment to the beneficiaries as long as the claim is made at any time throughout the term.
Uchenna Ani-Okoye is an internet marketing advisor
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