What is Decreasing Term Life?

Decreasing term life refers to a form of term life insurance. It is unlike level term insurance, which guarantees a set payout if you die or if you are diagnosed with a critical illness or disability as defined by the policy. Instead, the amount of payout decreases, often on a yearly basis, though your premiums stay the same.

There are some reasons why decreasing term life may be a good idea. First, it’s less expensive than level term life, so it can be good protection for people who don’t have a lot of money to pay for life insurance. Second, if your main goal is to insure that your mortgage is paid should you pass away, decreasing term life is usually attached in terms of payout to the amount of your mortgage. If this form of insurance is meant to only cover your full mortgage, that amount should naturally decrease as you make monthly payments. It may be used as a form of mortgage insurance, especially since many plans include payout if you become critically ill or seriously disabled.

Though decreasing term life is less expensive, in the end it may be more expensive. This type of insurance will eventually decrease to the amount of nothing, and your investment will result in no payout if you survive the term of the insurance. Additionally the amount goes down, so no money is invested, and no life insurance “matures.” It is temporary protection, which in the short run may be less expensive, but in the long run may be an investment of a lot of money for absolutely no return.

On the other hand, small payments for insurance that at least guarantee you will have money to pay off your mortgage and not leave survivors with this responsibility can be a great relief to many people. Even if that amount decreases over time, it still means survivors don’t have to deal with the stress of either beginning work immediately after your death to make mortgage payments, or having to sell, perhaps, a family home, because the payments are not affordable. This may especially give great comfort to people with young families, where the absence of one of the mortgage holders/parents could make it very challenging to maintain standard of living for the surviving parent and children.

When evaluating life insurance, it’s a good idea to look at your baseline needs for your survivors or what you need if you become unable to work. Some people owe very little in mortgage payments, and decreasing term life would not make much sense under these circumstances. It may be better for some people to look for an insurance plan that instead has a stable, predictable payout that will not decrease over the life of the policy.