Sign up & start saving!
Get our weekly newsletter for the latest in money news, credit card offers + more ways to save
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
Compare decreasing term life insurance
This cheaper form of term life is targeted towards your dwindling debts, but it loses its value over time.
Guides
Coverage
Policy Length
Age
Decreasing term life insurance provides coverage for a set period of time with a death benefit that decreases over the life of the policy. If your only concern is paying off a mortgage or other big debt, a decreasing life insurance policy allows you to cover these debts without paying for coverage you don’t need.
How does decreasing term life insurance work?
With decreasing term life, you pay a fixed monthly premium throughout your 20 to 30 year term. In exchange for a premium that’s cheaper than a traditional policy, you have a death benefit of up to one million that decreases either monthly or annually over the term of your policy.
Some policies shrink your death benefit by 5% per year over your term. Others shrink substantially every five years — such as a 25-year $500,000 policy with a benefit that decreases by $100,000 every five years.
Decreasing term life is typically tied to a personal debt, such as a mortgage, that also decreases over time. That way, if you die during your term, your family is able to pay off your mortgage with the remaining benefit. Read through your policy documents before signing to make sure you’re aware of any beneficiary requirements, in case you’re required to list your lender as the beneficiary.
Compare decreasing term life insurance
Pros and cons of decreasing term life insurance
Pros
- Less expensive than most policies. Having a decreasing benefit means your monthly premium costs less per month compared to a level term policy of the same value, but your death benefit loses its value over time.
- May not require a medical exam. Depending on your age and insurer, you may not need to take an exam or answer health questions for approval.
- Covers your largest debts. This policy is designed to cover your largest financial obligations if you die during the term.
- OK for small business loans. A decreasing policy between partners in a small business can be used to secure commercial debt and keep the doors open if one partner dies.
Cons
- Loses value over time. You’ll save on premiums, but at a cost of thousands of dollars from your death benefit each year.
- Doesn’t account for future needs. If your financial priorities change, your decreasing benefit may not be enough to help your family cover your debts after you die.
- Limited insurers. Few insurers offer decreasing term life insurance, which can make it difficult to secure a competitive policy.
- Unfavorable policy terms. If you have mortgage protection insurance, which is a type of decreasing term insurance — your beneficiary must be named as your mortgage lender instead of your family. Read your policy carefully to make sure you’re aware of who receives your policy’s payout.
Alternatives to decreasing term life insurance
If your financial priority with life insurance is covering your largest debts after you die, the relatively low cost of a decreasing policy might be worth it while your policy is still worth a lot and covers your largest debts. However, as you get closer to your policy’s expiration date, you’re paying the same premium, but for a significantly lower amount of coverage.
However, a slightly higher premium can buy you a traditional term policy that doesn’t decrease in value over the term:
- Term insurance ladder. Stack multiple term policies to avoid locking in to more insurance than you need. For example, you can buy two policies at once: a 20-year term to fit your mortgage and a 30-year term to take care of your children. Ideally, after 20 years, you’re closer to paying off your mortgage, leaving you for the next 10 years with the cost of only one policy for the coverage you need.
- Level term life insurance. For just a few dollars more each month, you can get the same coverage as your decreasing term policy — but with no decrease in benefits. This ensures your family is covered no matter how your finances evolve.
Bottom line
A decreasing term life insurance policy may sound like an affordable option for covering large debts without paying for insurance you don’t need. Yet by comparing level term policies, you can find a policy with fixed premiums and a consistent death over the life of your term.
Frequently asked questions
More guides on Finder
-
Texas disaster assistance for the 2021 Winter Storm
Here’s where to get financial help for yourself and your business if you’ve been affected by the storm in February 2021.
-
Investing in your 30s: 8 wealth-building tips
Prepare to revamp your asset allocation and explore new investment classes.
-
What is health insurance cost sharing?
Learn cost-sharing terms to find out how much you’ll really pay for healthcare.
-
FloatMe pay advance app review February 2021
Small cash advances perfect for avoiding steep overdraft fees.
-
Lemonade life insurance review
This fintech just branched out into low-cost life insurance — but its lineup is limited.
-
Compare teledermatology options
Get the skincare you need without taking a trip into your doctor’s office.
-
Compare life insurance wellness programs
Get an incentive to meet your existing health and fitness goals with a discounted premium.
-
Combined life insurance review February 2021
Find unusually low face values for a whole life policy, ideal for supplemental insurance.
-
8 unconventional funeral ideas to celebrate your loved one
Personalize your loved one’s memorial or shave thousands off of funeral costs with these ideas.
-
Compare life insurance for major organ transplant
Learn your policy options based on the type of transplant and your health status now.
Ask an Expert