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Should I get level term or decreasing life insurance?

Posted by : Premraj | Posted on : Tuesday, August 4, 2020

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Are you facing a dilemma choosing between level and decreasing life insurance? This post is for you! Inside, we’ll help you decide the most suitable option for you depending on your current needs and preferences. The idea is to show you what each cover entails while also explaining their respective pros and cons.

What is a level term life insurance?

This type of policy offers financial protection to your loved ones when you pass away within the contract term. This means no payout is given if you outgrow the set term limit.

Your beneficiaries receive the sum agreed regardless of how soon you pass away after initiating the contract.

What is a decreasing term life insurance?

As the name suggests, this is a type of cover whose payout decreases over time. Put otherwise, when you apply for decreasing term life insurance, the potential payout at the beginning of the contract is higher than towards the end.

Most insurance providers offer it as a mortgage repayment backup plan. It helps to ensure that your dependents are able to clear any remaining mortgage balance after you’re gone.

Similarities between level term and decreasing term life insurance policies

The main similarity between level term and decreasing term life insurance is that both come with a fixed contract term. Should the risk for which you’re taking the cover doesn’t occur within a specified duration, the insurer has no obligation to meet your financial burden.

The payout is in cash lump sum form for both life insurance policies. Your beneficiaries will receive the sum assured when you pass away. For level term life insurance, the payout amount is constant regardless of the time at which a claim is made within the course of the contract. For decreasing term life insurance, the payout amount depends on the time at which the risk occurs.

Both types of covers offer financial support following your passing away of the applicant to guarantee that your loved ones will be able to sustain their normal lifestyles or pay off the mortgage.  

Differences between level term and decreasing term life insurance

The payout for level term life insurance remains constant within the contract period, while that of decreasing term life insurance reduces over time.

The level term life insurance is recommended for an interest-only mortgage where the sum assured can be used to pay for any remaining balance. On the other hand, decreasing term life insurance is more suitable if you’re looking for a guarantee that your loved ones won’t lose their home after you’re gone for not repaying the mortgage in full.

Level term life insurance helps to guarantee financial security for all your family’s needs. The decreasing term life insurance is suitable for meeting financial burdens of debts, such as a repayment mortgage.

Pros and cons of level term insurance

Pros

– The applicant has the freedom to decide the length of the cover and the beneficiaries

– Both the premiums and payout amounts are fixed

– It’s an excellent cover for all your family’s financial needs

Cons

– The cost of premiums is dependent on age. The older you are, the costlier the cover gets when taking the policy out.

Pros and cons of decreasing term insurance

Pros

– Suitable for covering unsecured debts, such as a repayment mortgage.

– It is cheaper than most other forms of life insurance.

Cons

– It doesn’t cover all your family’s financial needs when you’re gone. You may require an additional insurance policy to guarantee your family financial protection

– The payout amount reduces over time, while premiums remain the same

Should you get a level term or decreasing term life insurance?

Like most life insurance policies, the choice between level term and decreasing life covers depends on your individual needs. But we have a quick tip to make your decision-making easier:

A decreasing term life insurance is an excellent option when you’re starting a family, but facing a high-risk life situation like a mortgage repayment. Payouts might be higher at the beginning, but this guarantees those who depend on you that they will still have a home even after you’re gone.

The level term life insurance is suitable for all age groups as it has a fixed payout. It guarantees your family the much-needed financial security no matter your time of passing.

So, which of these two policies do you think best suits your current situation? We’d love to hear your feedback in the comments below.

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