Decreasing Renewable Term Life Insurance: Pros And Cons

Term life insurance is a simple and affordable way to get life insurance coverage for a specific period of time, usually between 10 and 30 years. You pay regular premiums during the term, and if you die within that time frame, your beneficiaries receive a lump sum payout called the death benefit. If you outlive the term, however, there’s no payout and your coverage ends.

But what if you want to pay less for your coverage or keep your coverage after the term expires? That’s where decreasing renewable term life insurance comes in. This type of policy not only provides a death benefit to your beneficiaries if you pass away during the term, but also reduces the coverage and allows you to extend the policy without having to re-qualify for new coverage.

Decreasing renewable term life insurance can be a good option for people who want to cover their debts or obligations, such as a mortgage or a business loan, that decrease over time. But it also has some drawbacks, such as lower death benefit and higher renewal premiums. In this article, we’ll explain what decreasing renewable term life insurance is, how it works, and how it can benefit you. We’ll also compare its pros and cons with other types of life insurance and help you decide if it’s right for you.

How Decreasing Renewable Term Life Insurance Works

Decreasing renewable term life insurance is a variation of term life insurance that adds two features to the policy: decreasing and renewable.

Decreasing means that the death benefit of the policy decreases over time, usually on a monthly or annual basis, according to a predetermined schedule. The decrease in coverage typically matches the decrease in debt or obligation that the policy is designed to cover. For example, if you buy a 20-year decreasing term life insurance policy with a $500,000 death benefit to cover your mortgage, the death benefit will decrease every year as you pay off your mortgage balance.

Renewable means that you can renew your policy for additional terms without having to prove your insurability again. For example, if you buy a 10-year renewable term life insurance policy, you can renew it for another 10 years at the end of the term, regardless of your health status. However, you’ll have to pay a higher premium based on your age at renewal.

According to Investopedia, decreasing renewable term life insurance is usually issued for a period of 1 or 5 years that can be renewed for additional terms until the expiration date or the 70th birthday of the policyholder, whichever comes first.

The cost of decreasing renewable term life insurance depends on several factors, such as your age, health, term length, coverage amount, and insurer. According to Bankrate, decreasing renewable term life insurance is usually cheaper than regular term life insurance for the same term length because it offers less coverage over time.

Benefits Of Decreasing Renewable Term Life Insurance

Despite its lower coverage, decreasing renewable term life insurance has some advantages that may appeal to some people. Here are some of them:

• Paying less than regular term life insurance for the same term length. This is one of the main benefits of decreasing renewable term life insurance. If you don’t need a large death benefit or want to save money on premiums, you can opt for a decreasing renewable term life insurance policy that offers less coverage over time but costs less than a regular term life insurance policy with a constant death benefit.
• Being able to renew the policy for additional terms without proof of insurability. This is another benefit of decreasing renewable term life insurance. If your health deteriorates during the term of your policy or you still have debts or obligations to cover after the term ends, you don’t have to worry about losing your coverage or paying exorbitant premiums. You can simply renew your policy for another term at a predetermined rate based on your age.
• Having peace of mind that your debts or obligations will be covered in case you die. Decreasing renewable term life insurance can also give you peace of mind that your debts or obligations will be covered in case you die unexpectedly. For example, if you have a mortgage or a business loan that decreases over time, you can buy a decreasing renewable term life insurance policy that matches the amortization schedule of your debt or obligation. This way, you can ensure that your family or business partners will not be burdened with your debt or obligation if you pass away.
• Having the option to convert the policy to a level or permanent policy in some cases. Some insurers may allow you to convert your decreasing renewable term life insurance policy to a level term life insurance policy that maintains a constant death benefit or a permanent life insurance policy that lasts your whole life and builds cash value. This can be a good option if you want to increase your coverage or access the cash value of your policy. However, you’ll have to pay a higher premium based on the type and amount of coverage you choose.

Drawbacks Of Decreasing Renewable Term Life Insurance

Decreasing renewable term life insurance is not a perfect solution, however. It also has some drawbacks that may outweigh its benefits for some people. Here are some of them:

• Having a lower death benefit over time that may not match your needs or goals. This is the biggest downside of decreasing renewable term life insurance. As your coverage decreases over time, you may not have enough death benefit to meet your needs or goals. For example, if you have dependents who rely on your income or you want to leave a legacy for your heirs, you may need a larger death benefit than what your decreasing renewable term life insurance policy offers.
• Paying higher premiums if you renew the policy at older ages. Another drawback of decreasing renewable term life insurance is that you’ll pay higher premiums if you renew the policy at older ages. The premiums for decreasing renewable term life insurance increase with each renewal based on your age, and they may become unaffordable or exceed the cost of a regular term life insurance policy with a constant death benefit.
• Missing out on potential returns from investing the extra money elsewhere. Another drawback of decreasing renewable term life insurance is that you’re giving up the opportunity to invest the extra money you’re saving on premiums and earn a higher return than the cost of insurance. For example, according to ValuePenguin, if you invested the difference between a regular term life insurance policy and a decreasing renewable term life insurance policy in a diversified portfolio that earned an average annual return of 7%, you could end up with more money than the cost of insurance after 20 years.
• Having limited choices of insurers and terms. As mentioned earlier, decreasing renewable term life insurance is not widely offered by many insurers, and those that do offer it may have different terms and conditions for it. This means you have fewer options to compare and shop for decreasing renewable term life insurance policies than for regular term life insurance policies. You may also have trouble finding a decreasing renewable term life insurance policy that matches your desired term length or coverage amount.

Alternatives To Decreasing Renewable Term Life Insurance

If you’re not convinced that decreasing renewable term life insurance is right for you, don’t worry. There are other options that can provide similar or better benefits than decreasing renewable term life insurance. Here are some of them:

• Buying regular term life insurance and investing the difference in cost. This is probably the best alternative to decreasing renewable term life insurance for most people. You can buy a regular term life insurance policy that meets your coverage needs and budget, and then invest the difference between what you would pay for a decreasing renewable term life insurance policy in a savings or investment account. This way, you can get both protection and growth for your money, and potentially end up with more money than the cost of insurance.
• Buying a level term life insurance policy that maintains a constant death benefit. If you want a simple and affordable way to get life insurance coverage for a specific period of time with a constant death benefit, you can consider buying a level term life insurance policy. These policies are cheaper than decreasing renewable term life insurance policies for the same amount of coverage, and they offer more security and stability for your beneficiaries.
• Buying a mortgage protection insurance policy that covers your mortgage payments. If you want to cover your mortgage payments in case you die unexpectedly, you can consider buying a mortgage protection insurance policy. These policies are similar to decreasing renewable term life insurance policies, but they are designed specifically to cover your mortgage payments and not other debts or obligations. They are usually offered by lenders or banks as part of the mortgage process, and they may have lower premiums and easier underwriting than other types of life insurance policies.

Conclusion

Decreasing renewable term life insurance is a type of policy that reduces your coverage and allows you to extend your policy without re-qualifying. It can be a good option for people who want to cover their debts or obligations that decrease over time, such as a mortgage or a business loan. But it also has some drawbacks, such as lower death benefit and higher renewal premiums.

Before you buy decreasing renewable term life insurance, you should weigh its pros and cons and compare it with other types of life insurance. You should also shop around for quotes from different insurers and consult a financial advisor if needed.

Life insurance is a personal decision that depends on your needs, goals, and budget. Decreasing Life insurance is a personal decision that depends on your needs, goals, and budget. Decreasing renewable term life insurance may be a good option for some people, but not for others. The important thing is to find a policy that gives you peace of mind and protects your loved ones.

Received message. Life insurance is a personal decision that depends on your needs, goals, and budget. Decreasing renewable term life insurance may be a good option for some people, but not for others. The important thing is to find a policy that gives you peace of mind and protects your loved ones.