What is Decreasing
Term Insurance
- Coverage against debt obligations
- No Pre-medical Checkups
- Compare Decreasing, Increasing & Level Term Insurance
Decreasing term insurance works on the basis of decreasing your term life cover up to a percentage every year ultimately decreasing your sum assured. Such plans are usually purchased to help clear debts, such as home loan, car, student loan repayment.
As your loan decreases over time, so does the amount of your insurance coverage. If you're steadily paying off your mortgage, your dependents would need less money to cover the remaining amount in the event of your death.
Decreasing term life insurance differs from standard term insurance in one significant element - the coverage amount of the plan reduces over time. Hence the name decreasing term insurance.
Decreasing term insurance plans operate similarly to regular term insurance. Under decreasing term insurance, the life cover in the policy decreases annually at a specific rate. But please note that your premiums will remain constant throughout the policy term. Similar to term insurance, you can decide the policy tenure. But you'll find the premium rates for the plans are relatively lower than regular-term plans.
Let's understand with an example:
Does passing on the liabilities to your dependents scare you? If yes, you can prevent it with a decreasing term insurance. It is an ideal term plan designed to cover liabilities specifically.
If you've got an outstanding home or car loan, this plan ensures that your family will not be financially burdened with debts after you pass away. With decreasing term insurance, as you pay your loans, your life cover in the policy decreases annually at a specific rate.
While the face value of a standard Term Life Insurance policy remains constant throughout the policy tenure, the Death Benefit decreases either monthly or annually in case of Decreasing Term Insurance. However, in both these cases, the premium and the policy term remain constant.
Choose a cover amount depending on the outstanding liability that your family might need to pay off upon your death.
The sum assured then reduces each year in line with an outstanding debt for the duration of the policy, eventually finishing at zero by the end of the policy term. As and when the debt becomes zero, the sum assured becomes zero.
In return for the coverage, policyholders are required to pay a monthly premium to the insurance provider. Please note that the premium amount remains standard and reflects the policy's overall cost from start to end.
When calculating the amount of decreasing term insurance, you need to assess the outstanding liability that your family might need to pay off upon your death. Remember that the amount of life cover does not reduce at a rate faster than the outstanding debt, or else it defeats the objective of a decreasing term insurance plan.
It is essential to accurately estimate the coverage amount rather than just guessing a randomly high figure. Ideally, the cover amount should be higher than or as close to the debt amount as possible to eliminate the possibility of incurring additional charges.
Decreasing term life offers security for decreasing expenses. When you hold an outstanding loan that'll decrease over time, such as a student loan, home loan, business loan, or car loan, decreasing term life offers timely security in case your unfortunate demise and your debt is passed on to dependents. Startup owners find this plan helpful to protect indebtedness against operational expenses.
For instance: when one partner dies, the life cover from the policy can help fund continuing operations or eliminate the percentage of the outstanding debt for which the deceased partner is responsible.
Decreasing term insurance is ideal if you want to buy specifically to cover liabilities. Under this plan, you'll ensure that your family may not be burdened financially with outstanding debts that are not settled while you're alive. For anyone who holds any outstanding liabilities, like home, care student, or mortgage loans, then this plan will be best for them.
| Factors | Decreasing Term Insurance | Standard Term Insurance | Increasing Level Term |
| Sum Assured | Sum Assured decreases over time | Sum Assured remains constant throughout the policy term | Sum Assured increases at regular intervals |
| Who should buy it? | Ideal for those who wish to cover debts/mortgages or expect their financial obligations to decrease with time | Ideal for those looking for regular source of income after the Life Assured's death | Ideal for those who expect financial responsibilities to increase with time |
Since the main objective of buying life insurance is to protect the family's financial future, with decreasing term life insurance, you can ensure that your family will have enough financial support to pay off outstanding debts. If the thought of passing liabilities to your family scares you, then decreasing term life insurance is an ideal financial tool to cover liabilities.
Sum insured decreases over time, as a result of which monthly premiums tend to be much lower for Decreasing-Term Life Insurance policies.
As with all types of Life Insurance policies, it's possible to add Critical Illness cover to a Decreasing-Term policy. However, as per the inclusion of the rider, the premiums will increase.
Generally, a grace period of 30 days from the date of policy issuance is associated with any Term Insurance policy. If you decide to cancel the policy during this period, you are liable to receive the premium payment back.
Check and compare plans from 21 IRDAI-approved term insurance providers before purchasing a term plan.
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