If you've never heard of decreasing term life insurance, you've come to the right place to start learning about it. This type of insurance is important to learn about and compare with other types of life coverage if you want to be sure that you have the right kind of coverage for your needs. Decreasing term life insurance plans comprise one of the three major types of life insurance coverage. Below, we'll explain how this type of insurance operates.
Decreasing term works like this. You start with a term life insurance policy. Then you make the face value of the policy slowly decrease from the time coverage begins until the policy expires. Your premium stays the same over the life of the term policy. The decreases usually occur monthly or annually.
Here's a hypothetical decreasing term life scenario: A 40-year-old man buys a 20-year decreasing policy. During the first year of the policy, his death benefit is $400,000. The benefit decreases by $20,000 each year. By the time the policy enters its last year, the benefit will be only $20,000. And the cost of the premiums are the same throughout the life of the policy.
You can probably tell from the above example that it is often wiser to buy a short-term decreasing policy than a long-term one. You can use decreasing policies to help you pay off a mortgage or finance other short-term goals, but if you want longer coverage, you should look into other types of life insurance as well.