Decreasing Term Life Insurance

Learn How Decreasing Term Insurance Applies

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Most life insurance policies maintain a level death benefit. Decreasing term life insurance is different and for a good reason. This policy was created to pay off the mortgage on a home upon the death of the homeowner.

Let us, for example look at a recently purchased home with a 20 year mortgage. It would be wise for the homeowner to buy a decreasing term policy, also known as a mortgage protection life insurance policy.

When you buy a home and finance your purchase through a bank or a mortgage company the larger portion of your first few payments go to interest. The rest of the payment each month is applied to what is known as a sinking fund, applied to reduce the balance owed.

Each year the amount owed is reduced until you owe no money at all and the home is all owned by you. Being aware of how mortgages work life insurance companies created the decreasing term policy with a face amount that reduces as the balance owed reduces or as close as possible to the balance owed.

Upon the death of the homeowner the mortgage is paid off leaving a home free and clear for the surviving family.

This type of life insurance is very inexpensive.

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