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What does annuitized whole life insurance mean?

When searching for the best term life insurance for your situation, budget and preferences, it is inevitable that you will have to choose between different types of insurance:

  • The equal death benefit insurance policy
  • The linear decreasing life insurance policy
  • The annuitizing term life insurance policy
annuity decreasing life insurance graph

Annuity decreasing or declining life insurance is a widely chosen option because it has some interesting benefits. What exactly is such insurance and in what situation is it best to choose this option? Questions that you will see answered here.

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What is annuitization in annuitized whole life insurance?

Before we can delve deeper into the benefits of annuity decreasing life insurance, it is worth analyzing the concept. With such insurance, there is a decreasing trend when it comes to the premium you pay.

Annuity, in turn, refers to the time period over which this decrease occurs, namely per year. So with annuitized decreasing life insurance, the corresponding premium will decrease each year. Usually this is done on the basis of a so-called annuity percentage.

In this sense, this form of insurance exhibits a contrast to linear decreasing term life insurance, since with the latter one does not use a percentage to decrease the amount to be paid off. The main difference, however, is with evenly declining term life insurance, where the monthly or annual premium logically always remains the same.

When is the best time to purchase annuity-based term life insurance?

The meaning of annuity decreasing is clear, but in what situations is taking out this insurance a good idea? As the name suggests, annuity decreasing life insurance is a smart move if you have also taken out what is known as an annuity mortgage on your home.

With such a mortgage, you pay a fixed amount each month over the entire repayment period. Part of that is interest and with another part you pay off the mortgage on your home. In the beginning, this interest portion is still large in the beginning, since you pay that interest on a higher amount.

The advantage, however, is that over time you pay off more of your outstanding mortgage, which also reduces your mortgage debt. An additional consequence of this is that the interest to be paid becomes smaller and smaller. However, since you do pay off the same amount each month, the total amount paid off becomes larger and larger.

In summary, this means that the mortgage debt falls slowly at the beginning of the mortgage term and rapidly at the end. Thus, the annuity mortgage is already a good basis for also taking out annuity-based term life insurance.

The benefits of annuity-based term life insurance

So what exactly are the main advantages of annuitizing term life insurance? Here's a clear overview:

1. Insurance fits well with an annuity mortgage

As already mentioned, annuity decreasing term life insurance is a good complement to the annuity mortgage. As the policyholder, you can set up the term life insurance policy in such a way that the percentage less you have to pay each year in mortgage debt is equal to the percentage less you receive each year from the term life insurance policy.

2. The premium is reasonably low

A second important advantage of annuity-based term life insurance is that the premium with this option is relatively low. It is still high at the beginning of the term, but as time passes, the monthly cost decreases steadily. Therefore, the long-term margin that such insurance offers immediately explains its popularity among policyholders who are thinking about the future.

In short, annuitized decreasing life insurance is an option you should definitely consider as a potential policyholder. Both for your own financial security during your lifetime, and for that of your dependents after your death!