Decreasing term life insurance

Decreasing term life insurance

Decreasing term life insurance is a term life insurance policy in which the payout decreases as the insurance term progresses. Despite paying consistent premiums, the death benefits your family receives decline over time, whether monthly or annually. 

Decreasing term life insurance is intended to cover those whose expenses are expected to decrease over time. If you died at the beginning of the term, your loved ones would receive more money than if you died at the end.

For your better understanding of decreased term life insurance, here is a quick guide!

What is decreasing term life insurance for?

Usually, decreasing term life insurance is purchased to protect a specific debt, most often a mortgage. If you are making payments on a 20-year mortgage, you can purchase a decreasing-term policy in proportion to the death benefit and the length of your mortgage. As you pay your mortgage each year, your payout decreases as well. In fact, many lenders will not grant you a mortgage unless you have a life insurance policy in place.

Buying decreasing term insurance ensures that your loved ones will not face the burden of paying off your outstanding debts at a time when they are already experiencing difficulties. Suppose you have a 20-year mortgage, and if you are steadily repaying your loan, then at the time of your death, your dependents would need less money to pay off what is left of your loan. If you die with a mortgage, a decreasing term policy protects your family financially so that your beneficiary receives the payout to pay off your mortgage.

How does decreasing term life insurance work?

Just like level term life insurance, decreasing term life insurance covers you for a specified time frame, known as the “term“.  For your insurance policy to remain active, you must pay monthly or annual premiums. A decreasing term insurance plan lets you decide how much coverage you need. Each year, this amount decreases until it reaches zero at the end of the policy.

The question is, how much does decreasing life insurance decreased by? Take the example of a 15-year term plan with a $150,000 payout, which is subject to a 5% decrease rate each year. When you die within the first year of your policy, you will receive the full amount of the death benefit, which is $150,000. Following that, the payout would decrease by 5% every year until it is paid to your beneficiaries upon your death or policy expiration. That means, if you die during the sixth year, you would get $112500 after a reduction of 25%. 

Decreasing term life insurance advantages and disadvantages 

A decreasing term life insurance policy has several advantages and disadvantages, which you need to keep in mind. In order to determine whether this policy is the right fit for you, you must compare its pros and cons to find out what suits you best.


  1. Cost-effective: Decreased term insurance is frequently less expensive than level term insurance. The monthly premiums are typically lower than with other types of life insurance due to the decrease in coverage over time.
  2. Mortgage protection: People who have repayment mortgages are more likely to opt for this type of policy. Some lenders won’t lend you money unless you have life insurance, so a decreasing-term life insurance policy can provide financial security as well. 

Nevertheless, decreasing term insurance has some disadvantages as well. They are as follows:


  1. Declining value: A decreasing life insurance policy will typically lose its value with time. The is because the amount your policy pays out will decrease with time. So, if your policy is nearing its end, premiums will be the same, but you’ll receive far less benefit.
  2. No guaranteed payout: Since the value of the policy decreases as the years go by, the payout is not guaranteed once the term is over.

How much does decreasing term insurance cost?

A decreasing term insurance policy tends to be more cost-effective than a level term policy since it reduces the amount of coverage you have over time. Even so, insurance companies still take into account several factors prior to determining your policy’s price. Here’s what they look at:

  • Your age
  • Your profession
  • Your location
  • Your health 
  • Your lifestyle
  • Family medical history
  • The policy term you choose
  • How much coverage do you want
  • Whether you smoke or not
Tip: It is highly recommended to purchase life insurance early in life due to the high cost of life insurance for seniors. When you get older, life insurance becomes more expensive. The reason is simple- older people are more likely to file a claim because they are more likely to have medical problems and die more often.

Decreasing term insurance vs. Level term insurance

Decreasing term insurance is the best solution for those who want to ensure that they will be covered for the remaining balance of their mortgage payment in the event of their death. However, not everyone will find this suitable! Decreasing term is best for those who want to make sure their mortgage payments will be covered after their death so that their loved ones can settle their debts.

Level term insurance, on the other hand, pays a pre-determined death benefit to a beneficiary upon the death of the insured. In other words, mortgage payments and other debts will NOT be covered directly by the level term, and it is up to the beneficiary how to spend the death benefit. Level-term life insurance is the best choice for those planning to leave their loved ones a cash value upon their death.

The Bottom Line

Whatever type of life insurance you choose, level or decreasing term life insurance, you’d always like to provide your family with the best possible income. But not at the expense of overpaying in premiums today! A decreasing term insurance policy, under which your payouts decrease each year, can put you at even greater risk of not having enough coverage. Thus, it’s extremely important to find the right balance between getting enough coverage and paying as little as possible.

At The Insurance Insights, we carefully research, review, and update every article with relevant information in order to make all types of insurance understandable for our readers. To find all the information you need, contact us at

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