decreasing term life insurance provides life insurance coverage for a specific period of time. Presently, one year to thirty five years are the periods one can buy decreasing term life insurance over. If the insured dies during the period the insurance is in force, the insurance company pays off the face value of the policy. If the insured lives longer than the term of the policy, the policy is no longer in effect. Nothing is paid.
Decreasing term life insurance, or mortgage protection life insurance, as it is commonly known, has a sum assured which reduces each year (or possibly each month) by a stated amount, decreasing to nil at the end of the term. It is normally used to cover a reducing debt, such as the capital outstanding on a house purchase mortgage, with the sum assured being linked to the reduction in the capital outstanding under the loan.
Cheap decreasing term life insurance
Although the cover decreases each year, the premium remains constant. Premiums are sometimes payable for a shorter period than the policy term itself, because otherwise there would be a temptation for the assured to lapse the policy in the last year or two, when the sum assured has reduced to a comparatively low level.
Premiums for decreasing term life insurance are either slightly cheaper than for level term assurance for the same initial sum assured and term – or the same, but payable for a shorter period.
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