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  • If you have been looking for cheap insurance options, your insurance agent may have told you about decreasing term insurance. Understanding how this type of insurance works will help you decide if decreasing term coverage is right for you.

    Definition

    Decreasing term insurance is coverage that decreases at certain intervals (usually once per year) while the premiums stay the same.

    Purpose

    This type of coverage is typically used as life insurance to cover temporary expenses that decrease over time. Examples include mortgage and credit obligations.

    Face Value

    The face value of a decreasing term insurance policy is the greatest at the beginning of the policy, and gradually reduces to zero at the end of the policy term.

    Advantages

    The main advantage of a decreasing term insurance policy is that it is cheaper than level term insurance.

    Disadvantages

    Because the face value of this type of policy typically decreases at a linear rate (it decreases by the same amount each year), the face value of the policy may be less than the remaining balance of the mortgage or credit loan during the early years of the policy.

    Source:

    AccuLife: Cheap Decreasing Term Insurance

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