insurance

Decreasing Term Insurance

A type of term life insurance where the death benefit decreases over time while the premium typically remains level. This insurance is often used to cover debts like mortgages that decrease over time, ensuring coverage matches the declining obligation.

Example

“Robert purchased decreasing term insurance with an initial $300,000 death benefit to match his mortgage balance, knowing the coverage would decrease as he paid down his home loan.”

Memory Tip

Think 'Decreasing = Debt Coverage' - as your debt goes down, so does your death benefit, but that's exactly what you need for mortgage protection.

Why It Matters

Decreasing term insurance provides an affordable way to ensure debts like mortgages won't burden surviving family members, while avoiding paying for more coverage than needed as obligations decrease. This type of insurance is typically much cheaper than level term insurance, making life insurance protection more accessible for young families with large debts.

Common Misconception

People often confuse decreasing term insurance with regular term insurance that simply expires, but decreasing term specifically reduces the death benefit amount over time while often maintaining the same premium. Another misconception is that it's always the cheapest option - while premiums are lower, the cost per dollar of coverage actually increases over time as the benefit decreases.

In Practice

Jennifer bought a 20-year decreasing term policy with an initial $400,000 death benefit for $35 monthly to cover her mortgage. Each year, the death benefit decreased by $20,000 while her premium stayed at $35. By year 10, her death benefit was $200,000 (matching her remaining mortgage balance), and by year 20, it decreased to zero just as her mortgage was paid off. Over 20 years, she paid $8,400 in premiums for coverage that exactly matched her debt obligation throughout the loan period.

Etymology

Combines 'decreasing' from Latin 'decrescere' (to grow less) with 'term insurance,' referring to temporary coverage. This product type emerged in the mid-20th century as mortgage lending became widespread.

Common Misspellings

decreaseing term insurancedecreasing term insurencedecresing term insurancedecreasing turm insurance

More in insurance

Other insurance terms you should know

deductibleThe amount you pay out-of-pocket before your insurance begin…insurance premiumThe amount paid periodically to an insurance company in exch…deductibleThe amount a policyholder must pay out of pocket before insu…copayA fixed amount paid by an insured person at the time of a me…coinsuranceA cost-sharing arrangement where the insured pays a percenta…out-of-pocket maximumThe most an insured person will pay for covered healthcare s…