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.

Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.