Friday - - Advice -

Q I’ve been ad­vised to take a de­creas­ing term life in­sur­ance on my mort­gage be­cause it’s more rea­son­able. How­ever, I’m con­cerned that in years to come it will be of no ben­e­fit. Please ad­vise.

A A de­creas­ing term life in­sur­ance pol­icy is the most cost-ef­fec­tive way of cov­er­ing the mort­gage on a prop­erty, where you are re­pay­ing the prin­ci­pal and in­ter­est on the loan, over a pe­riod of time. The pol­icy cov­ers only the out­stand­ing amount of the loan at any given point of time, as the life cover goes down pro­gres­sively ev­ery year, whereas the premium re­mains con­stant. An al­ter­na­tive to the de­creas­ing term is the level term pol­icy, where the cover re­mains con­stant through­out the term. In case of death of the life-in­sured, the pol­icy not only cov­ers the out­stand­ing loan, but also pro­vides a lump sum for the fam­ily. Hence the premium will be higher than that of a de­creas­ing term pol­icy.

Yet an­other al­ter­na­tive is a Whole of Life plan, which will have cash value build up over time and of­fers greater flex­i­bil­ity. Pre­mi­ums are higher, but this could be the best op­tion for mort­gage cover.

TARUN KHANNA is CEO of Nexus In­sur­ance and has over 18 years of ex­pe­ri­ence in the financial sec­tor

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