Decreasing Term Life Insurance

This is a type of Life Insurance that is designed to take care of outstanding debts for its eventual pay off.

Decreasing term life insurance is a specialised product usually used to cover a mortgage or any other type of debt. It decreases because as you pay off the debt, you need less life cover to pay it off if you were to die instantly. These policies prevent you passing outstanding debts on to your descendants. Although the monthly premium remains constant over time, it is primarily cheaper than term life insurance.

To fully understand what is a decreasing term life insurance, you have to know first what a term is. The term of a life policy is the length of time that you are covered for. A whole life policy covers you indefinitely from the moment you take the policy out. Since it is a certainty that you are going to die someday, these are more expensive compared to term assurance policies which only offer you cover for a specific length of time for example, fifteen years. That is because, depending on your age and health, there is a big probability that you will not die in those ten years- in which case means, the insurer has simply taken your cash.

Decreasing term life insurance is used to cover a very specific type of expense: a debt which is usually a mortgage. If for example you took out a policy today, across fifteen years, the amount of your mortgage would progressively diminish across those fifteen years. So if you died after fourteen years, the policy would have to deliver less money to cover the nominated expense; than if you died the following year. It means that decreasing term life insurance is designed to let you pay a lower premium because the expected amount you get when you die is decreasing, as well.