Decreasing Term Insurance Calculator

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Protecting your life with term life insurance is one of the best ways to ensure the financial well-being of your family. Some types of term life insurance plans are made to compensate for the loss of life and make sure your family has everything it needs in absence of a breadwinner. Other plans are made to protect their financial interests from the liabilities that you took during your life span. These plans are known as decreasing term life insurance plans. This piece is dedicated to understanding what these plans are all about and how one can calculate their premiums for the same using a decreasing term life insurance calculator.

What is Decreasing Term Insurance Plan?

Decreasing term life insurance is a type of life insurance plan that is used to protect your family’s financial interest when you have a huge loan to pay off like a home loan. The decreasing term insurance lasts for as long as your loan tenure lasts and when you have completely repaid your loan, the tenure of the decreasing term life plan also ends. Decreasing term life insurance proves to be a very cost-effective alternative when it comes to life insurance plans. The premium of these plans keeps on decreasing over time as you pay off your loan. It offers higher flexibility, safety for your family or dependents, and needless to mention, better value for your money.

How Do Decreasing Term Insurance Plans Work?

A policyholder can choose to take a decreasing term life insurance plan for any duration ranging from 5 years to 30 years. You can choose the tenure of your plan in accordance to the tenure of your loan. The insurance provider will schedule you’re decreasing term life insurance as per the schedule of your loan. For example, if you are scheduled to pay off AED 20,000 every year for your loan, the insurance provider will make arrangements to reduce your premium proportionately to match that. Once you have the insurance plan, you start from the top where the premium of the plan is at its highest. Now, as the plan goes further and you pay off the equal monthly payments of the loan, the premium of your decreasing term life insurance plan.

What is Decreasing Term Insurance Calculator?

A decreasing term life insurance calculator is an online tool that can be used to calculate the premium you will be paying for your insurance policy depending on the coverage amount you choose and a few other key factors. To use a decreasing term insurance calculator, you will need information like your age, gender, your area code (to identify your area of residence), the tenure you want for your decreasing term insurance plan and the coverage amount you need. Once you have these details, enter them in the designated spaces to get the premium rate for your plan. Some calculators may offer you more detailed information with a few variable options depending on your health status. For people with relatively good health, the premium levels are lower. Similarly, people who aren’t fit or have a long-term illness will get higher premiums.

How Do Decreasing Term Insurance Calculators Work?

Decreasing term life insurance premium calculations are a little different than other kinds of premium calculations since the premium decreases over time with the loan amount. The decreasing term life insurance calculators take your age, your gender and your area code into account to estimate your health status. Parameters like age, gender and your area of residence highly affect your health. Once that has been figured out, further calculations are done as per the coverage amount you select and the tenure of the plan. As mentioned previously, some calculators may even give you a few different premium options as per your health so that you have a certain range within which your premium is speculated to be.

How to Use a Decreasing Term Calculator?

All you need to do to use a decreasing term life insurance calculator is to find a suitable one, collect all the information you need and proceed to work the calculator. You can easily fill out the sections that require you to enter your basic details like age, gender and area code. When choosing the coverage amount of the decreasing term life insurance plan, consider your loan amount first. Choose an amount equivalent to that. Apply the same when you are choosing the tenure of your insurance plan. Match it with the remaining tenure of your loan and then find out the premium amount for your decreasing term insurance. Once you have an estimate for your premium, you can start looking at the available plans as per your requirements.

When and Who Should Buy Decreasing Term Insurance?

A decreasing term life insurance is suitable to be bought when you are in the process of taking a huge loan or have already taken one. It is designed to protect the financial interests of your dependents if the policyholder dies during the loan tenure. Long-term loans like mortgage loans can prove to be a burden on a family if they are transferred to them after the breadwinner’s demise. You can also buy a decreasing term life insurance plan to cover your comparatively short-term loans such as personal loans or car loans. It depends on the level of security you want. So, the right time to buy a decreasing term life insurance cover is when you take on a long-term loan. 

Borrowers who have a repayment schedule drawn for their loan should buy a decreasing term life insurance. It may not be ideal for borrowers who have made arrangements to pay the interest on the loan every month and then pay off the loan amount at the end of the loan tenure. Decreasing term life insurance is designed to reduce the premium as you pay off your loan amount with the interest amount. So, the greater amount you have repaid, the lesser your premium would be. If you are not scheduled to repay your loan amount with interest with an equal monthly payment system, decreasing term life insurance may not be an ideal fit for you. 

Is It Worth Buying Decreasing Term Life Insurance?

When bought at the right time and for the right reasons, decreasing term life insurance plans can come in handy to save a lot of financial trouble for your dependents or family. So, yes, if your sole purpose to get a life insurance plan is to protect your dependents from taking the burden of a loan that you took. Additionally, it leaves the assets you bought using the loan amount at the disposal of your dependents. In a nutshell, buying a decreasing term life insurance can be beneficial if you buy it for its rightful purpose. 

Alternatives for Decreasing Term Life Insurance

  • Whole Life Insurance: As the name suggests, a whole life term insurance plan covers you for as long as you shall live. Unlike a term life insurance plan, it does not have a maturity date. So, your family and/or dependents are bound to receive the payout on the demise of the policyholder. Outliving the policy and losing all the payout money is not going to be the case with your whole life insurance plan. However, remember that most whole life insurance plans only offer coverage till the age of 99 years.
  • Level Term Life Insurance: Level life insurance plans come with a pre-specified premium amount and a pre-specified benefit sum both of which do not change over the tenure of the plan. Level term life insurance is best when you do not want your health or the inflation levels in the market to affect the premium rates of the plan. Yet again, your dependents get a payout if you meet your demise during the tenure of the plan. 
  • Family Income Benefit: If you want your family to have a regular source of income after your demise, family income benefits plans may be a sound choice for you. These plans pay out a monthly sum as compensation instead of paying out a lump sum amount. This way, your dependents can have a regular stream of income.  
  • Increasing Term Life Insurance: This is a plan that works in the opposite manner than decreasing term life insurance. Increasing term life insurance premiums rise over time as does the assured sum of the plan. These plans are designed to beat the effects of inflation on your term insurance payout amount. 

FAQs

Q1. Should I buy decreasing term life insurance?

Ans: You can buy a decreasing-term life insurance plan if you have long-term to cover like mortgage loans. 

Q2. How is level term insurance different from decreasing term life insurance?

Ans: Level-term insurance plans come with a fixed monthly premium and fixed payout amount. The premiums and the payout remain the same throughout the term of the plan. Decreasing term life insurance plans are the opposite of this. The premium as well as the payout keeps receding over time as you keep on paying your loan amount. 

Q3. Where can I find a decreasing term life insurance calculator?

Ans: You can easily find a decreasing term life insurance calculator online on several different platforms. Using each of the calculators is quite easy. 

Q4. Is decreasing term life insurance the same as mortgage insurance?

Ans: These two insurance plans are similar in some ways and different in others. Both are scheduled as per the long-term loan you have taken and cover the tenure. Where mortgage insurance payout is given to your lender, decreasing term life insurance plan payout is given directly to the policyholder’s beneficiary. Your dependents can use it to pay off the loan or handle the family expenses. 

Q5. Does decreasing term life insurance has a maturity date?

Ans: Yes, decreasing term life insurance plans have a maturity date. If you survive the term of the policy, it expires and no payout is given.

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