The decreasing term insurance designed for the breadwinner of the family who requires an inexpensive policy providing adequate death benefits is called mortgage term life insurance. The benefits accruing from it can be utilized to pay the mortgage in the event of the person’s death. And what is absolutely great about this kind of insurance is that here you do not have to worry about increasing premium. The process includes that during the initial years of the payment of the premium, the greater part of it will go into the interest. And eventually with the decrease of the principal, a large part of the payment you make will then go to actual mortgage payment.
The early stage of the payment period is always risky for the insurance companies. These companies will calculate the risk expenditure that it is annually bearing for a determined number of years. On the basis of that an insurance company will provide you with an average, so that there will be for you a level premium for those years. And this is exactly why the premium does not change throughout the payment period and you get the advantages of the premium remaining the same.
The policy for mortgage term insurance extends the payment period in order for the mortgage to be paid off by the time of the person’s death. Again, it also offers the benefits of decreasing term insurance because it has its death benefit decreasing each year. Hence, the amount of total payout that the insurance company has to give upon the policy owner’s death will be the amount that is due to the bank or the mortgage company. And thus you can free your heirs of any responsibility to pay off your mortgage.
As this life insurance option is especially designed to protect the repayment mortgage, the cover amount will reduce roughly in keeping with the way there is a decrease in the repayment mortgage. Some important things to know about decreasing life insurance are that it is not a product for investment or savings and hence has no clash value in the absence of a valid claim, secondly, you have to make sure the policy duration is long enough in order to cover the length of the mortgage term and thirdly, in some cases of decreasing cover there are situations when the cash amount paid out by the mortgage company or bank is not enough to pay off the full mortgage. An example for the third instance is that in case there are changes made to your mortgage by you or the interest rate of the mortgage averages above ten per cent during your policy duration.
In order to buy the mortgage term life insurance, there are certain things you should consider. In case you do not have dependents, you might just want to ensure that you have your mortgage covered. And if you have a family, availing the insurance might be a good idea to not only have your mortgage taken care of, but also to leave a nest egg for your family to help them with maintaining their living standard. However, you may have other reasons for availing the mortgage term life insurance. For example, there are a few lenders who will ask for such a policy in case you are buying a house.