Decreasing life insurance is an affordable option for those looking for coverage that decreases over time as their financial responsibilities change. From its lower premiums to its adaptable coverage, decreasing term life insurance offers a unique solution for those seeking life insurance protection. However, many people wonder how much does decreasing life insurance decreased by each year.

In this comprehensive article, we’ll break down the key features and benefits of decreasing term life insurance and answer the question: How much does it decrease by each year? 

What is Decreasing Term Life Insurance?

Decreasing term life insurance is a policy that provides a death benefit that decreases each year. The policyholder chooses the length of the term, and the coverage decreases over that term. 

A decreasing life insurance policy is often used to provide coverage for a specific period of time, such as the length of a mortgage or loan. The decreasing death benefit aligns with the decreasing amount of debt that needs to be paid off in the event of the insured’s death.

For example, a decreasing term life insurance policy with a 20-year term and a $200,000 death benefit would pay out $200,000 in the event of the insured’s death during the first year of the policy. However, the death benefit would decrease each year, so that in the 20th year of the policy, the death benefit would be $0.

How Much Does Decreasing Life Insurance Decrease By Each Year?

The amount that a decreasing life insurance policy decreases by each year can vary depending on the policy and the insurance company. Some insurance companies may offer policies where the death benefit decreases by a fixed percentage each year. In contrast, other companies may offer policies where the death benefit decreases each year by a fixed dollar amount.

For example, a policy that decreases by a fixed percentage each year may decrease by 5% each year. In this case, a $200,000 death benefit would decrease to $190,000 in the second year of the policy, $180,500 in the third year, and so on.

On the other hand, a policy that decreases by a fixed dollar amount each year may decrease by $10,000 each year. In this case, a $200,000 death benefit would decrease to $190,000 in the second year of the policy, $180,000 in the third year, and so on.

Factors That Affect the Decrease in Coverage Of Decreasing Life Insurance Each Year

A decreasing life insurance policy can decrease in coverage every year based on various factors. These include:

• The length of the term: The policy term is the length of time for which the policy is in effect. The longer the policy term, the more gradual the decrease in death benefit will be.

• Interest rate: The interest rate is one of the key factors determining the decrease in decreasing term life insurance. A low-interest rate may result in lower premiums and a slower decrease in the death benefit. In comparison, a high-interest rate may result in higher premiums and a more rapid decrease in the death benefit.

• The percentage of decrease: The policyholder can choose the percentage of decrease, which will affect the amount of coverage that decreases each year.

• Loan balance: The coverage of decreasing term life insurance is often tied to the balance of a loan, such as a mortgage. As the loan balance decreases each year, so does the coverage of the policy.

• Age of the policyholder: As the policyholder grows older, the coverage of decreasing term life insurance decreases each year. This is because the policy is designed to provide coverage during the policyholder’s working years when they’re most likely to have financial obligations such as a mortgage or dependents.

Benefits of Decreasing Term Life Insurance

Despite the decrease in coverage each year, decreasing life insurance can still provide valuable benefits to the policyholder. These benefits include:

• Affordable premiums: Decreasing term life insurance policies often have lower premiums than other types of life insurance policies.

• Coverage for specific needs: This type of policy can provide coverage for specific needs, such as a mortgage or loan, that decrease over time.

• Flexibility: Policyholders can choose the length of the term and the percentage of decrease, allowing them to tailor the policy to their specific needs.

The Bottom Line

In conclusion, decreasing term life insurance is a type of policy that decreases in coverage each year. The amount of decrease can vary depending on the length of the term, the percentage of decrease, and the type of policy. Despite the decrease in coverage, decreasing term life insurance can still provide valuable benefits, such as affordable premiums, coverage for specific needs, and flexibility. On average, a decreasing term life insurance policy can decrease by 5-7% each year; however, this rate can vary from insurer to insurer. Understanding how much does decrease life insurance decreased by each year will help you decide which policy is best for your financial situation.