The Mortgage Protection Insurance “Scam”: Why Decreasing Term Is a Bad Deal.
The Benefit Shrinks, But Your Payment Doesn’t.
When we got our mortgage, our lender pushed “mortgage protection insurance” hard. It sounded great—a policy that pays off the house if one of us dies. Then we looked closer. It was a decreasing term policy. The death benefit was designed to shrink every year along with our mortgage balance. But the premium we had to pay stayed the same, level amount for 30 years. We were paying the same price for a constantly diminishing amount of protection. It was a terrible value proposition designed to profit the bank.
How Level Term Gives Your Family MORE Money Over Time, For the Same Price.
More Benefit, More Flexibility, Same Cost.
Instead of the bank’s decreasing term policy, we bought our own 30-year level term policy. The premium was almost identical. But with our level term plan, the death benefit of $500,000 stays the same for all 30 years. In year 29, our mortgage balance might only be $20,000, but the policy would still pay out the full $500,000. This gives my family hundreds of thousands of extra, tax-free dollars to use for income, college, or anything else. We got massively more protection for the same price.
Your Mortgage Balance Goes Down, But Your Premium Stays the Same? The Decreasing Term Rip-Off.
You’re Paying More for Less Every Single Year.
The logic of a decreasing term policy is fundamentally flawed from a consumer’s perspective. Think about it: every year, the insurance company’s risk goes down because the potential payout is smaller. Yet, they continue to charge you the exact same premium. You are paying more money for less coverage with each passing year. A level term policy is the opposite. As inflation rises, your fixed premium feels cheaper over time, but your death benefit remains high. Always choose the product that gives you increasing value, not the insurance company.
Why a Level Term Benefit Gives Your Family Options Beyond Just Paying Off the House.
Don’t Let the Bank Decide Your Family’s Future.
A decreasing term policy has one beneficiary: the bank. It’s designed only to pay off the mortgage. A level term policy names your spouse or family as the beneficiary. This gives them control. When the tax-free check for $500,000 arrives, they can choose what to do. Maybe paying off the low-interest mortgage isn’t the smartest move. Maybe they need that cash to replace lost income, pay for childcare, or invest for the future. Level term provides choices; decreasing term provides a single, rigid mandate from the bank.
The ONE Situation Where Decreasing Term Life Might Make Sense.
A Niche Solution for a Specific Problem.
While level term is better for 99% of people, decreasing term can be a useful, low-cost tool for someone with a specific, temporary business debt. For example, if you took out a 5-year business loan with a high interest rate, a 5-year decreasing term policy could be a cheap way to ensure that specific debt is covered if you die, without having to buy a more expensive level term policy. For short-term, high-stakes debt protection, it can occasionally be the right fit.
A Chart That Proves It: Level Term vs. Decreasing Term Payout Over 30 Years.
The Picture is Worth a Thousand Words (and Dollars).
Imagine a simple chart. The horizontal axis is 30 years. The vertical axis is the death benefit. A level term policy is a straight, flat line at the top—a $500,000 payout in year 1 and a $500,000 payout in year 30. A decreasing term policy is a steep, downward-sloping line that starts at $500,000 and ends near zero. The huge triangular gap between those two lines represents the extra, life-changing money your family gets with a level term policy, often for the very same monthly premium.
Don’t Tie Your Family’s Future to Your Mortgage Balance.
Your Family’s Needs Are Greater Than Your Debt.
Your family’s biggest financial need after your death isn’t just paying off the house. It’s replacing your income. It’s paying for groceries, healthcare, and college. A decreasing term policy only solves the debt problem. A large, level term policy solves the much bigger income problem. It provides a pool of capital that can be invested to generate an income stream for your family for decades. Focus on protecting your family’s entire future, not just the roof over their heads.
The “Computer Science” of Insurance: Why Level Term is a Better Value.
The Math is Undeniable.
Insurers use complex computer models to price their products. When you buy a decreasing term policy, you are paying for the highest risk (in year one) for the entire duration of the policy. The company’s risk drops every year, but your price doesn’t. With level term, the price is an average of the risk over the entire term. The math will almost always show that the cost-per-dollar-of-coverage is far, far lower with a level term policy. You get significantly more protection for your premium dollar.
Your Bank is Selling You Decreasing Term. Here’s Why You Should Say No.
They Are Protecting Their Asset, Not Your Family.
When your mortgage lender offers you mortgage protection insurance, they are not acting as your trusted advisor. They are a salesperson for a product that benefits them. It ensures their loan gets repaid. It’s often overpriced, and they may even get a commission for selling it. You should always politely decline and buy your own individual level term policy from an independent agent. This ensures you get the best price and a policy that is designed to protect your family’s interests, not the bank’s.
Get a Death Benefit That Your Family Controls, Not the Bank.
The Power of a Check Made Out to Your Loved Ones.
With mortgage protection insurance (decreasing term), if you die, the check goes directly to the bank. Your family never sees a dime. With a level term policy, the check is made out to your spouse or beneficiary. This is a critical difference. It gives them the power and flexibility to assess their new financial reality and use the money in the most effective way possible. Never give up that control. The death benefit should be a tool for your family, not just a repayment mechanism for your lender.