Last updated: July 19th, 2022
Reviewed by
Grant Desselle
Licensed Insurance Agent
Most people are familiar with the concept of life insurance, but what about decreasing term life insurance? Decreasing term life is a specific type of life insurance policy that provides protection for a fixed period of time. Unlike traditional whole life insurance or universal life insurance, the death benefit decreases down the line as premiums are paid.
Decreasing term plans can be a good choice for those who want to purchase more coverage than they could afford with a permanent policy. Keep reading to learn more about how it works and whether it’s right for you.
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Which policy component decreases in decreasing term insurance? In this regard, the death benefit decreases over time while the premium remains level. The death benefit may decrease annually or monthly, depending on the policy, as it is designed to provide protection for a set term, such as 10 or 20 years.
For example, if you purchase a policy with a death benefit of $500,000 and a premium of $100 per month, the death benefit would decrease by $5,000 each year. At the end of the 10-year term, the death benefit would be $100,000.
Most policies also have a conversion option, which allows you to convert the decreasing term policy to a permanent policy without having to go through underwriting again. This can be a helpful option if your health status changes or you no longer need coverage.
There are several benefits to consider when looking at decreasing term life insurance policies:
Because the death benefit decreases over time, decreasing term life insurance policies are generally less expensive than permanent life insurance policies. This can allow you to purchase more coverage.
The death benefit on a decreasing term life insurance policy is designed to go down as your financial obligations decrease. For example, if you have a mortgage that you plan to pay off over 20 years, a decreasing term life insurance policy can provide protection for the length of the mortgage.
Some decreasing term life insurance policies offer the option to convert to a permanent life insurance policy without having to prove insurability.
Decreasing term insurance is not without its disadvantages, which are good for you to know before you dive in and sign. These include:
When shopping for a decreasing term life insurance policy, it’s important to understand the following terms:
A decreasing insurance policy is beneficial for those who want coverage for a fixed period of time. It can also be less expensive than level term life insurance policies and allow you to purchase more coverage.
At the end of a decreasing life insurance policy, the death benefit is paid out to your beneficiary. If you have a policy with a term of 20 years, the death benefit will be paid out if you die within the 20-year term.
One important element of a decreasing term life insurance policy is that the death benefit decreases over time. This can provide protection for a specific period of time, such as when you have a mortgage.
Yes, you can cancel your decreasing term life insurance policy at any time. However, if you do so after the policy has been in force for less than two years, you may be subject to a cancellation fee. Discuss cancellation options with your insurance provider before signing any agreement.
To learn more about decreasing term life insurance policies or to get a quote, visit the Insurist website today. We can help you find the right policy for your needs and budget.
Brian is the founder and CEO of Insurist and carries Life, Health, and Property & Casualty licenses in all 50 U.S. states. Since 2013, Brian has been a member of Million Dollar Round Table, a designation for the top 1% of financial advisors worldwide. Brian has been featured in Yahoo! Finance, Money.com, Entrepreneur.com, Life Happens, Forbes, MSN, and Good Financial Cents. Brian’s goal is to show customers the best products, the quickest answers to their questions, and provide expert advice.
Grant's past experience includes work as a licensed sales agent for Hagerty Insurance. He has reviewed thousands of existing auto policies across the nation and issued hundreds of new ones on everything ranging from classic cars undergoing restoration to modern exotics and motorcycles.
