Is term life insurance something you should buy? This question gets asked a lot, and the answer is simple. If you have dependents that could be in financial trouble after your death, or you have a mortgage, then the answer is “yes”! Term life insurance is a cheaper life insurance alternative that pays a sum of money upon death. You take out the policy for a specific period, and it will pay out should you pass away during this period. These periods can be either 5, 10, 15, 20 or 30 years, depending on your insurer. The monthly premiums are incredibly affordable, and it is easy to obtain such a policy. Two types of term life policies exist namely, decreasing term life insurance and level term life insurance. Let us explain these two policies.
Decreasing term life insurance
Decreasing term life insurance is usually really cheap, usually only a few dollars per month. If you pass away before it reaches its full term, this policy will pay the outstanding balance of your mortgage. The reason it is called decreasing term insurance is that the insured amount decreases as your exceptional mortgage decreases. The premium usually stays the same for as long as you have the policy, making it a very predictable and safe option, mainly if you work on a monthly budget. Remember that this policy only pays out a fixed amount to help settle your mortgage debt. It does not provide any money to your loved ones.
Level term life insurance
These policies are not as cheap as decreasing level insurance but are still affordable. It includes everything decreasing level insurance does, but you also have the option to leave a sum of money to your loved ones. The insured amount does not decrease with time, but stays the same – so does your premium.
This policy is highly recommended if you have an outstanding mortgage and loved ones who depend on the money you bring in every month. Keep in mind that level term life insurance does not have to be at the same time as your mortgage. You could have a policy covering your mortgage, as well as a 15-year level term insurance policy, for example. The premiums for the 15-year level term will be more expensive than that for longer terms, as the term is shorter. It will, however, provide you with the needed cover in the unfortunate event that you pass away during this term.