There seems to be an endless amount of life insurance types available for today’s shoppers. Each life insurance policy has their advantages and disadvantages. Whole life has been around the longest and term life insurance tends to be the least expensive. But what about decreasing term life insurance? If you haven’t heard of this type of policy you’re not alone. Decreasing term is a quite unique and it has a few specific attributes that you should know about. Do all of the best life insurance companies offer it? No, only a few provide it – so let’s look into decreasing term and some creative alternatives.
Decreasing term life insurance definition
Decreasing term life insurance is defined as a term life policy that provides the beneficiary a gradually decreasing death benefit over the life of the policy. The death benefit will decrease on a monthly or annual basis. Your life insurance premiums are typically level for the life of the contract. The terms lengths for decreasing term can range from 1 to 30 years.
How does decreasing term life insurance work?
Decreasing term life insurance works differently compared to Traditional Term Life. With traditional term life, you have a fixed (level premium) that is guaranteed to never increase for the life of the policy and your death benefit is level.
With decreasing term life, your premiums are fixed- but you death benefit will shrink over time. So you’re paying the same exact amount every year (or month)- but your death benefit will decrease every year (or month).
| Overview | Level Term Life Details | Decreasing Term Life Details |
|---|---|---|
| Term Length? | 1-30 years | 1-30 years |
| Death Benefit Guaranteed? | Yes | Yes, but death benefit decreases over time, per terms of policy |
| Cash Value? | No | No |
| Level Premiums? | Guaranteed to remain level | Guaranteed to remain level, even as death benefit decreases |
| Misc. | Best option if you’ll need coverage for a number of years | Most often purchased as mortgage insurance through a bank |
Who buys decreasing term life insurance?
Why on earth would someone buy a policy that has a decreasing benefit? Well, there are some situations that warrant decreasing term life.
Situations where shoppers may want to look into decreasing term include:
- Asset protection.
- Payoff mortgage as it decreases over time.
- You only need coverage to pay off the balance of a loan.
- Need a policy with lower premiums compared to traditional term life.
- Small business owners who need to protect debts from start up expenses.
The most common situation for decreasing term is for mortgage protection. Mortgage life insurance is frequently used for some shoppers who want coverage after taking out a mortgage.
With mortgage protection insurance (also referred to as MPI), you’ll get a decreasing term policy that is bought from your lender or bank.
This is different from buying private mortgage insurance (known as PMI). With PMI, you’re getting a policy that your bank may require you to purchase if you could not put down 20% or more for your mortgage.
Decreasing term life insurance rates
When you buy decreasing term life insurance, you’re getting reasonably priced coverage in comparison with permanent life insurance options.
How much does decreasing term life insurance cost?
Let’s look at a 30-year old man in excellent health who doesn’t use tobacco. He’s looking to buy a decreasing term life policy with a benefit amount of $200,000 and a 15-year term. We’ll compare that rate with a permanent life insurance policy that also has a $200,000 benefit.
Monthly rates:
- Decreasing Term Life: About $25 per month.
- Permanent Life: About $100 per month.
The exact final rate will be determined by the company chosen as well as the specific product. Our example may spend considerably more depending on the type of permanent policy that he applied for. Did he choose a whole life insurance policy, universal life, or guaranteed universal life? Each product will make a difference in the final rate.
Decreasing term life insurance quotes
Decreasing term life insurance once was very popular, but the majority of shoppers have bought traditional term as prices have been going down over the years. Only a few companies still offer decreasing term.
If you’d like decreasing term life insurance quotes, please contact us. You can also get instant term life quotes here and start comparing rates from over 60 top companies.
Decreasing term life insurance alternatives
We’ve reviewed some of the drawbacks with decreasing term life insurance. What alternatives do life insurance shoppers have?
Laddering
A great strategy that is not used as often as it should is called laddering. Also known as term layering or term life laddering- you’ll buy 2 or more policies to work similarly to decreasing term.
With life insurance laddering, you’re stacking several different level term life insurance policies. These policies will expire in time as you end up paying down your debts. The end result: You should be paying a lower cost to your overall premiums when you look at the entire life of the policies compared to having 1 policy with a single premium.
Decreasing term life insurance – Bottom line
There are hundreds of life insurance companies and products available to you and life insurance shoppers. Buying life insurance now and having it around in the future when your family needs it most- is one of the most important purchases you’ll ever make. Is decreasing term life the best product for you? Probably not, but it’s possible. Regardless, we will provide you all of your options and you can choose what works best for you.
About Life Insurance Blog
At Life Insurance Blog, our focus is to deliver you the best life insurance options. We help shoppers like you find an affordable life insurance policy with the best life insurance companies. We have saved shoppers thousands of dollars over the life of their policies, and we look forward to helping you as well.
Please contact us if you need any help comparing life insurance products or companies.
