What is decreasing term life insurance?
With ordinary term life insurance, the death benefit (also known as the amount of coverage) remains the same for the length of the term. If a person purchased a traditional term life insurance policy for a 30-year term for, say, 500,000 dollars, the death benefit would be 500,000 dollars whether he passed away a year after he bought the policy or 29 years after he bought the policy. A decreasing term life insurance policy, however, is slightly different.
Decreasing term life insurance applies when your premiums stay constant for the period of the term but your cash benefits decrease with each year. The logic behind opting for this type of insurance is that as your family gets older, the amount required to maintain itself might lessen and that the reduced death benefits will still prove adequate. However, it is more likely that due to inflation and a possible age gap between the beneficiary and the insured (not always the spouse), the standard of living will definitely be higher than when the policy was purchased. Decreasing insurance is more suited for items such as home mortgages rather than life insurance. Or you could opt for it in the form of a rider provision or even a separate policy.
Decreasing term life insurance, which is sometimes referred to as mortgage protection assurance, is a type of life insurance in which the payout amount decreases over the term of the policy. There are two primary types of life insurance that fall under the umbrella of term life insurance. These include mortgage insurance and credit life insurance, both of which are quite similar.
Decreasing Term Life Insurance (sometimes called mortgage protection assurance) is where the sum assured decreases over the term of the policy. It is typically purchased by people looking to protect their repayment mortgage in the event of death, although it can be used to protect the repayment of a reducing debt such as a loan, or school fees etc. As the outstanding mortgage balance reduces each year, so does the level of insurance. That is, the purpose of this plan is to repay any capital you owe if you died. Will my monthly payments be the same throughout the term of the policy? Premiums are fixed for the term of the policy, meaning they wont increase over time. If I decide to cancel/surrender the policy, will it have any value? There is no surrender value at the end of a Decreasing Term Life Insurance, or if you choose to cancel the policy early. Therefore, this means that premiums are lower than a Level Term Life Insurance policy, although it is worth checking how much the cost of
