Decreasing term life insurance provides coverage for a set period of time, but the payout amount decreases over the life of the policy at a specific rate. This type of term life insurance is often used to protect a specific debt — it lasts as long as the loan, and the death benefit decreases as you pay it off even though the premiums remain set for the entire duration of the policy.
By contrast, a level term life insurance policy has more flexibility and is usually a better value for your money. The death benefit and premium of level term life insurance never change as long as you make policy payments on time.
How does decreasing term life insurance work?
Decreasing term life coverage usually lasts five to 30 years. The death benefit decreases over time on a schedule set by your insurer.
For example, the coverage amount might correspond with a personal loan or mortgage payment schedule.
Your provider could also set the death benefit to decrease by $100,000 every five years, or set a percentage decrease every year.
Most people encounter decreasing term life insurance as mortgage protection insurance (MPI). MPI is a decreasing term life insurance policy that’s tied to your mortgage loan. You can often purchase this type of policy through your bank, but some life insurance companies offer it, too.
In the event of your death, the life insurance company pays the death benefit directly to the mortgage company. So for instance, if you take out a loan for a $400,000 mortgage, and you were to die with $200,000 remaining on it, your insurance provider would pay out $200,000 to your lender.
When should you buy a decreasing term policy?
You might consider buying a decreasing term policy if you only need your benefit to pay the balance of a loan in the event of your death (like a mortgage), and don’t have any other expenses you’d need covered. With a decreasing term policy you never pay for more life insurance than you need.
Advantages of decreasing term life insurance
Decreasing term life insurance is typically tied to a specific loan or debt, so it can be a good fit for people in the following situations.
You have one piece of debt— like a mortgage or personal loan — that you want to ensure you cover if you die.
You don’t have a need for additional income protection beyond your loan. For instance, you might not have to financially support any family members.
You’re a small business owner looking to cover a business loan in the event of your death, so that your partner can keep the business running.
Disadvantages of decreasing term life insurance
Decreasing term life insurance can fit certain situations, but it comes with some restrictions in terms of cost and flexibility for your beneficiaries.
You end up paying the same price for less coverage as the term goes on, whereas with a level term, your premiums and coverage don’t change.
Your family or beneficiaries won’t be able to use the death benefit to cover other expenses in the event of your death. Decreasing term life policies are generally tied to a specific loan — the payout can only be used to cover that debt.
Decreasing life insurance vs. level term
Here’s how level term and decreasing term life insurance compare:
Five to 40 years
Five to 30 years
Guaranteed death benefit
Yes, but benefit decreases over time
Guaranteed to remain level
Guaranteed to remain level, even as benefit decreases
Getting coverage for several years and for more than just debt
Covering one large debt or loan
Alternatives to decreasing term life insurance
If your primary reason to purchase life insurance is to ensure that one debt is covered in case you die, a decreasing term policy could be an option. Still, most people can address this same financial need with standard term life insurance or the life insurance laddering strategy.
Term life insurance: A traditional term life policy can be used to cover all of your debts and give your family financial support for everyday expenses and savings. The death benefit never changes, even if you pay off your debts. This way, you’re not paying more for less coverage as time goes on.
The ladder strategy: This is a method in which you buy multiple level term policies of varying lengths and coverage amounts. The laddered policies expire as your financial obligations decrease, so you're only ever paying for the coverage you need.
Is decreasing term life insurance worth it?
For the most part, decreasing term life insurance isn’t worth the cost. Not only are you paying the same amount throughout the term for a shrinking benefit, but it often doesn’t account for your changing coverage needs.
If you’re worried that your need for life insurance will decrease over time, you can lower the amount of coverage you have with a traditional life insurance policy or use the ladder strategy. This will also lower your premiums — whereas in a decreasing life policy you’d continue to pay the same premiums for a lower amount of coverage.
If you’re not sure which type of life insurance is best for you, a Policygenius expert can help you find the right policy for your needs.
Other types of term life insurance
Frequently asked questions
Why would you get decreasing term life insurance?
You might get a decreasing term policy if you only need to cover a specific loan, like a mortgage.
How much does decreasing term life insurance cost?
Decreasing term insurance can be comparable to or cost less than a level term life insurance policy, but over time you’re paying the same amount for less coverage.
What happens at the end of a decreasing term insurance policy?
If you outlive your decreasing term policy, the insurance simply expires. There is no payout, you stop paying premiums, and you no longer have life insurance coverage.
Which policy component decreases in decreasing term insurance?
Your coverage amount decreases throughout the lifetime of your policy, and your premiums stay the same.