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Theory Of Decreasing Responsibility Applies To Mortgage Term Life Insurance

By Mike Heuer

When people go through their adult years, they take on many responsibilities, including many large financial obligations that decrease over time. Such obligations can include a home mortgage, raising children and paying for their potential college tuition, business interests and more. And when the amount of cash needed to pay off those interests dwindles over time, so does the amount of responsibility.

When it comes to protecting a home mortgage, decreasing term life plans are advised due in part because of the theory of decreasing responsibility. Among life insurers, the theory of decreasing responsibility is a primary reason behind the sale of term life insurance policies. Because term life is in force for a set number of years and then expires, it is an ideal way to protect financial obligations until they dwindle and eventually disappear.

Whether it’s paying off a home mortgage, having children grow into adulthood and possibly going to college to get jobs and careers of their own or paying off business obligations while starting up a new commercial enterprise, term life plans can provide a great deal of coverage for a very low price.

When protecting the debt on a family home, few tools are more affordable or effective than a mortgage term life insurance plan. The best of the policies have a decreasing term life insurance death benefit as well as premium, making them more affordable as the mortgage is paid down over the years. If the mortgage is a 30-year mortgage, a 30-year decreasing term life insurance plan can provide the financial protection necessary to ensure it stays in family hands if the head of household should die before the mortgage is paid off.

Such policies also can help protect a child’s college tuition or a loan on a vehicle. As the child nears graduation, there is less money needed to pay college tuition. Same goes for a vehicle. As payments are made, less is owed while decreasing the need for a large death benefit to pay off potential debts. And that means there should be more money available to invest in high-yield investment vehicles, such as mutual funds.

The theory of decreasing responsibility holds that having such investments means cash can be made available when needed and provide income whereas a whole life plan would require monthly payments that detract from available income. Even a savings account that grows at a small rate can be a better option than paying into a whole life plan, according to the theory.

While the theory has many upsides, it is dependent upon the policyholder actively investing and being disciplined enough to continue doing so until retirement. In which case, the returns can be great over the years while still protecting the financial obligations that occur earlier in life. But ignoring them still can leave the policyholder dependent upon fixed incomes during retirement.