The idea behind Decreasing Term coverage is based on the fact that with age, certain financial liabilities and the need for a high life insurance cover decreases. Such plans are usually purchased to help clear debts - such as a repayment mortgage. As debt decreases over time, so does the amount of Insurance. 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 on one significant element - the coverage amount of the plan reduces over time.
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.
Depending on the amount of mortgage that your family might need to pay off upon your death, choose a cover amount.
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, Sum Assured becomes zero alongside.
In return for the cover, policyholders are required to pay a monthly premium to the Insurance Provider. Please note that the premium amount remains standard and reflects the overall cost of the policy from start to end.
Let's take an example.
Debbie purchased a 20-year Decreasing Term Life Insurance policy with a coverage amount of Rs. 20 Lakhs. She has an outstanding Home Loan of Rs. 20 Lakhs. If Debbie were to die during the first year, her beneficiaries are liable to receive Rs. 20 Lakhs in full as the Death Benefit.
However, let's assume that the Sum Assured reduces by 5% simple rate of interest. Therefore, starting from the end of the first policy year, the Sum Assured would start reducing by Rs. 1 Lakh each year.
As Debbie continues to pay away her debt installments, an equivalent sum reduces from the coverage amount. This reduction continues annually until either the policyholder passes away or the policy pays out at the end of 20 years.
Now, if Debbie were to die 10 years into the policy term, her family receives Rs. 10 Lakhs as Death Benefit, which they can use to pay off the loan amount.
Check and compare plans from 21 IRDAI-approved term insurance providers before purchasing a term plan.
Know More About Life Insurance Companies
Know More About Term Insurance Companies
When calculating the amount of Life Insurance you need, you need to analyse the mortgage amount in addition to the amount of interest that you have to pay. You should ensure that the amount of cover does not reduce at a rate faster than the outstanding mortgage debt, or else it defeats the purpose of a Decreasing Term Insurance plan.
You should be very careful as you budget for these expenses. It is important 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, so as to eliminate the possibility of incurring additional charges.
Decreasing Term Insurance is usually best-suited to those who want to cover a specific debt. With this type of cover, you can be confident that your loved ones would be able to settle debts if you were no longer around. A Decreasing Mortgage Term Insurance plan is a great option for those looking to have a stable Mortgage Repayment Insurance option that will always cover the amount in line with how much is being paid on the mortgage.
On the other hand, if you would prefer to have a policy that pays out enough to cover the mortgage and leave additional funds to cover other expenses, standard Term Life Cover should be more suitable.
|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|
See More Term Insurance Articles
See More Term Insurance Articles
1. Why are Decreasing Term policies cheaper?
Sum insured decreases over time, as a result of which monthly premiums tend to be much lower for Decreasing-Term Life Insurance policies.
2. Can I get Critical Illness Cover with Decreasing-Term Life Insurance?
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.
3. What are the cons of Decreasing Term Insurance cover?
4. Can I cancel my policy if I no longer need it?
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.
May 1, 2023
I seek help from PolicyX when it comes to purchasing any kind of insurance because they provide me with the best quotes and options for insurance
December 14, 2022
PolicyX has a smooth service from booking policy to verification. Employees are very patient and have good knowledge and help you throughout the process. Had great experience dealing with them
December 9, 2022
I had many confusions regarding the term policies . But Policyx has handled it well, m happy that they are my wayfarer in this journey.
July 11, 2022
Good company. Presents nice term insurance plans and flexible plans also. My husband has brought one for the family.
July 11, 2022
IndiaFirst Term Insurance company ensures that your family s needs are looked after. One of the best companies offers a term plan per your needs.
July 6, 2022
I recently received the claim amount of the policy that my husband had brought for us. I am glad that the company understands the needs of its customers and their families. Well done Canara HSB...
July 6, 2022
I bought a term plan with Canara HSBC for the protection of my family and have been satisfied with the benefits received. It is simple and easy to buy their plans.
July 6, 2022
I am very happy with the term plans offered by the Canara HSBC Life Insurance company. The plans offer comprehensive coverage and I am sure will support my family after my demise.
Naval Goel is the CEO & founder of PolicyX.com. Naval has an expertise in the insurance sector and has professional experience of more than a decade in the Industry and has worked in companies like AIG, New York doing valuation of insurance subsidiaries. He is also an Associate Member of the Indian Institute of Insurance, Pune. He has been authorized by IRDAI to act as a Principal Officer of PolicyX.com Insurance Web Aggregator.