This is generally the cheapest form of life cover.
The sum assured decreases each year that the life assured lives, usually on a fixed scale, until at the end of the term the amount is zero.
Decreasing Term Life Insurance is a variation of term life insurance where the sum assured (death benefit) decreases over the term of the policy. The coverage amount decreases annually or at a predetermined rate until it reaches zero at the end of the term.
This type of insurance is often used to align with specific financial obligations that decrease over time, such as mortgage payments.
One common application of Decreasing Term Life Insurance is to provide protection for individuals who have repayment mortgages on their homes. With a repayment mortgage, the outstanding balance of the loan decreases over time as the homeowner makes monthly payments towards both the principal and interest. Since the outstanding loan amount reduces each year, the insurance coverage amount can also decrease accordingly.
In this scenario, if the policyholder passes away during the term of the policy, the insurance payout (death benefit) can be used to cover the remaining balance on the mortgage. This ensures that the family or beneficiaries are not burdened with the mortgage debt in addition to dealing with the loss of income.
Key Points:
- Decreasing Term Life Insurance is a specialized form of term life insurance.
- It's designed to match the decreasing financial obligations, like repayment mortgages.
- The premium payments for this type of insurance are often lower than those for a level term insurance policy (where the coverage amount remains constant), because the coverage amount decreases over time.
- While it's particularly useful for mortgage protection, it can also be used for other decreasing financial commitments.
It's important to carefully consider your specific needs and financial situation when choosing a life insurance policy.
If you have a repayment mortgage or other decreasing financial obligations, Decreasing Term Life Insurance could be a cost-effective way to ensure that your loved ones are protected from the financial burden of outstanding debts in the event of your passing.
