Decreasing Term Insurance

Decreasing Term Insurance

A term life insurance policy in which the policyholder pays a constant premium but the benefit decreases over time, either on a monthly, quarterly, or yearly basis. For example, one may purchase a decreasing term life insurance policy for a period of 20 years at a premium of $150 per month. At first, the benefit may be as high as, say, $200,000, but it may gradually shrink each year to, say, $50,000. A decreasing term policy is primarily beneficial to young people who have a considerable amount on liabilities but do not expect to have them in the future.

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Decreasing term insurance. With a decreasing term life insurance policy, the amount of the death benefit decreases each year of the fixed term -- such as 20 years -- although the premium remains the same.

This type of insurance tends to be an economical way to protect your beneficiaries should you die unexpectedly during a period when you have substantial financial responsibilities.

For example, young parents with a large mortgage might consider decreasing term policies to help insulate each other against the responsibility of meeting their financial obligations should something happen to one of them.