What is decreasing term life insurance?

This type of life insurance pays a death benefit if you pass away while the policy is active, but the payout amount decreases the longer you have the policy.

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Nupur GambhirNupur GambhirSenior Editor & Licensed Life Insurance ExpertNupur Gambhir is a licensed life, health, and disability insurance expert and a former senior editor at Policygenius. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service Cake.&Katherine MurbachKatherine MurbachEditor & Licensed Life Insurance AgentKatherine Murbach is an editor and a former licensed life insurance agent at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.

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Antonio Ruiz-CamachoAntonio Ruiz-CamachoAssociate SEO Content DirectorAntonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.
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Maria FilindrasMaria FilindrasFinancial AdvisorMaria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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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:

Level term

Decreasing term

Duration

Five to 40 years

Five to 30 years

Guaranteed death benefit

Yes

Yes, but benefit decreases over time

Premiums

Guaranteed to remain level

Guaranteed to remain level, even as benefit decreases

Best for

Getting coverage for several years and for more than just debt

Covering one large debt or loan

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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.

Authors

Nupur Gambhir is a licensed life, health, and disability insurance expert and a former senior editor at Policygenius. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service Cake.

Katherine Murbach is an editor and a former licensed life insurance agent at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.

Editor

Antonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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