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Decreasing Term Life Insurance: One of Several Options

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In a nutshell

A decreasing Term Insurance policy is a type of life insurance that decreases in value over time.

What exactly is Term Insurance?

You may already know that Term Insurance is a life insurance policy for which you pay the cost of insurance and fees for a specific period of time. The policies advertised via television are usually for ten years, but many people purchase 20, 30, or if they are young enough, even 40 year polices. The advantage of the term policy is that it is very inexpensive for high face values. The disadvantage is that the term will end at a time in your life when it will be expensive to purchase additional insurance.

"Cheaper" may or may not be better

Decreasing Term is even cheaper than standard Term and the initial face vales are generally very high. The most common use for decreasing term is to insure a mortgage or a business. The value of the insurance decreases slowly at first, then more rapidly in later years, keeping pace with the decline of the mortgage or debt. A few companies may also decrease the premium in later years, but in most cases the premium remains level.

Decreasing Term has largely fallen out of favor in the last 20 years because of its limitations. Its only purpose is to insure a debt; often the beneficiary is the bank or mortgage holder, but the insured individual is responsible for the premium. A level term policy, however, can be used to protect multiple debts or to provide for a family in the event of the untimely death of the principle wage earner, and the policy holder can choose the beneficiary. Of course, the face value remains level for the duration of the Term, so if a debt has already been paid, the beneficiary is able to use the proceeds of the policy for other needs.

Do you need Level or Decreasing?

While level Term is much more competitive than decreasing Term, there may be a few instances when decreasing Term, often called "mortgage" insurance should be considered. High mortgages—say, half a million or more—can be affordably insured with a decreasing Term policy. Furthermore, the company may offer a conversion option that would allow you to convert the policy to whole life before the face value is too diminished. Keep in mind, however, that if you intend to convert it, you can only convert the current face value or less. If the policy as already decreased, say by half or more, that is all you will be able to convert.

Check rates from out prequalified companies

You can check with our prequalified companies for affordable Decreasing Term or Level Term rates. If you decide on Decreasing Term, be sure you understand ALL the details of the policy before accepting it.