Peace Psyah.
Why is it okay to use such a demeaning word in a general sense? After writing an essay, you have come back to the question with zero answer.
Peace queer
Is it demeaning because it's unfair or is it demeaning because it has some truth to it?
I can explain my answer ...
To cover the truth one can do so;
a) consciously
b) unconsciously
Most people are undertaking acts of kufr without realising their kufr, those who do not believe in God are hence called Kaafir, but those who after being shown the wisdom and beauty of Islam still do not except it are still kaafir but more rightly deserve that title.
I find it amazing that many people believe in God yet do not believe in any accountability to God, and some people like to believe in God but say they don't, others still believe there could be a God, and others again are ashamed of their belief in God.
This variety of agnostic/atheist/lapsed believers are symptomatic of the same ailment ... which is kufr in God. Some realise it and others do not and to differing degrees.
Being a mo'min means to believe with firm conviction ... I guess being called a Kaafir is considered derogatory because deep down in the psyche of people the term addresses their innermost natures and that itself should be a point to reflect on.