What is decreasing term life insurance?

It can be easy to get overwhelmed when searching for a life insurance policy. Whether you are looking at whole or term life insurance coverage, you may feel bombarded by choices and not know which option would work best for you.

If you’ve never heard of a decreasing term life insurance policy, you’re not alone. While term life is a popular life insurance option, decreasing term policies are not that common. A decreasing term plan may be just what you need, depending on what you’re looking for and how much you can invest.

What is a decreasing term life insurance policy?

The basic definition of decreasing term life insurance is an insurance policy with a death benefit that decreases over time. A decreasing term life insurance policy still covers a policyholder for a specific amount of time. However, the death benefit of the policy becomes smaller during that term.

One of the benefits of purchasing a decreasing term life insurance policy is that the monthly rates are lower than ones you would find with standard level term life insurance. Policyholders pay less for coverage because the policy’s payout declines over time.

How much does the payout of a decreasing term policy decline?

The percentage that a decreasing term life insurance policy declines is not a standard rate. Instead, policyholders can choose the rate at which their policy declines. This means that a person willing to pay more in monthly rates could choose a smaller percentage of decline, or a person who wanted to pay a smaller monthly rate could choose a larger decline.

For example, if you purchased a 20-year decreasing term life insurance policy with a $300,000 payout at a decline of 5%, your payout would decrease by $15,000 each year.

Keep in mind that while the policy’s payout decreases every year, the amount you will pay in monthly rates for your decreasing term life insurance policy will remain the same. However, that amount would likely be lower than if you had chosen a level term life policy.

How much is a decreasing term life insurance policy?

The table below shows the average rates for a 20-year term life insurance policy based on age, gender, and health status.

20-Year Term Life Insurance Rates by Age

You won’t know how much you will pay for a decreasing term life insurance policy until you do some research to find quotes online. The rates listed above may give you a good idea of what to expect. Keep in mind that you may end up paying less since it’s a decreasing term life insurance policy.

Is decreasing term life insurance a good idea for me?

It’s always nice to pay less for insurance coverage, but you want to make sure a decreasing term life insurance policy will meet your needs before you purchase one. The primary benefit of a decreasing term life insurance policy is that it comes with cheaper monthly rates. However, you should seriously consider whether the payout would be enough to benefit your loved ones after you pass away.

In many cases, people overestimate how expensive a life insurance policy is. Before you decide to go with a decreasing term policy to save a few dollars every month, you should look into other options and compare online quotes. You may find policies with certain companies that offer more coverage for affordable rates.

Some people choose a decreasing term life insurance policy to cover their mortgage, understanding that the payout is a simple benefit to offset mortgage costs if they pass away unexpectedly. This may not be the best way to provide for your loved ones.

Since most people are already underinsured, a decreasing term life insurance policy may leave an even larger space between what your loved ones need and what the policy offers. You may find that another policy will work better for you and your family, considering there is no decreasing term life insurance cash value.

What other types of life insurance might be a good fit for me?

If your main interest in a decreasing term life insurance policy is the cheap rates, you may want to take some time to research life insurance policies online. Depending on your age, gender, and health status, you may be able to find a term or whole life insurance policy for cheaper than you think.

You could also purchase a term or whole life policy with a lower death benefit. This would lower your monthly rates while still allowing you to have the same payout at the time of your death. Your beneficiaries would not have to worry about a diminishing payout based on the age of your policy.

To get a better idea of the cost associated with whole life insurance, the table below shows average monthly rates for a $100,000 policy.

Average Monthly Rates for A $100,000 Whole Life Policy

Whole life insurance is substantially more expensive than term options when you compare these rates to the term life rates mentioned earlier. So if you’re concerned with paying a lot in monthly rates, it may be in your best interest to purchase a standard term policy with a payout that stays level throughout your term.