Decreasing Term vs Level Term Life Insurance: What Suits You Best?

Selecting the proper life insurance plan to secure your family's future can seem confusing. However, it is essential if you want peace of mind that your loved ones will be taken care of in case of an unfortunate event. Decreasing and level term life insurance policies are built for different needs. People often choose decreasing term life insurance to match a shortening debt, such as a mortgage, and prefer level term life to meet certain expenditures. How do you decide the best option for you? This blog discusses both policies, their pros and cons, and shows you the best way to choose one that fits your needs.

Selecting the proper life insurance plan to secure your family's future can seem confusing. However, it is essential if you want peace of mind that your loved ones will be taken care of in case of...

Selecting the proper life insurance plan to secure your family's future can seem...

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What is Term Life Insurance?

Term life insurance is easy to understand. You make monthly or annual payments, called premiums, for a set term. In case of your untimely demise within that period, your family gets a certain amount of money, called a death benefit.
This program is not ideal if you are looking for an investment component. It’s pure insurance protection. There are many types of term policies, and two of the most common ones are level term life insurance and decreasing term life insurance, also known as reducing term life insurance.

What is Level Term Life Insurance?

Level term life insurance provides a fixed sum assured and a fixed premium throughout the policy's duration. Whether you die in Year 2 or Year 19 of a 20-year term, the payout to your nominee remains the same.
This type of policy is ideal for individuals who want predictable protection for their family, covering long-term obligations like:

Children’s education
Family’s lifestyle expenses
Future living costs

Since the payout remains constant, this policy is also a good option if you’re looking to leave behind a financial legacy or ensure coverage for high, long-term responsibilities.

What is Decreasing Term Life Insurance?

Decreasing term life insurance, or reducing term life insurance, works a little differently. As the name suggests, the coverage amount, i.e., the amount paid to your family, gradually decreases over the term of the policy, usually every year. However, in decreasing term insurance, the premiums paid remain the same.
This makes decreasing term life insurance policies well-suited for covering debts or liabilities that shrink over time, such as a mortgage or a business loan.
If your mortgage is for a period of 20 years, it might be best to purchase a 20-year decreasing term life policy. The longer you pay on your mortgage, the lower the amount of life cover will be. If you pass away during the term of the policy, the payment will go to your family to help them pay off the loan.

Difference Between Level Term and Decreasing Term Life Insurance

Let’s make the comparison simple by breaking down the core differences:

Feature	Level Term Life Insurance	Decreasing Term Life Insurance
Death Benefit	Constant through the entire term	Reduces over time
Premiums	Typically fixed	Usually fixed, though benefits reduce
Best Suited For	Lifestyle expenses, education, and future living costs	Mortgages and loan protection
Cost	Slightly higher	More affordable
Flexibility	Less dependent on external loans or liabilities	Set up with a goal of falling debt numbers

Pros and Cons: Level vs. Decreasing Term Life Insurance

To decide what’s right for you, let’s break down the advantages and disadvantages of both policy types.

Type of Insurance	Pros	Cons

Level Term Life Insurance	The death benefit does not change for the whole policy period and remains the same for your family.	Generally, these policies require higher premiums than term insurance with a decreasing death benefit.
	Good choice for future needs, including lifestyle and educational expenses.	If your liabilities (like a mortgage) reduce over time, you might pay for more coverage than necessary.
	The straightforward structure enables people to grasp and understand it easily.
	They can be combined with mutual funds or other investments to create a more effective financial plan.
Decreasing Term Life Insurance	Lower insurance costs, which help make term life insurance less expensive.	The death benefit decreases over time, offering less protection in later years.
	Helps pay costly mortgages or business loans, so you don’t have to pay for policy amounts you don't need.	It may not be suitable if you have dependents with long-term needs or require stable financial support after your death.
	A good plan for debt repayment rather than for supporting dependents.	May not help save sufficiently for important goals, such as college fees or money needed for raising young children.

Which One Should You Choose?

Choosing between level term life insurance and decreasing term life insurance depends on your personal and financial goals.
Here’s a general guide:

Your Financial Situation	Recommended Policy
You hold a mortgage for an extended period.	Decreasing Term Insurance
Your goals include maintaining your family’s current lifestyle.	Level Term Insurance
You have children who need you to provide for their education.	Level Term Insurance
You manage a company and have decreased your borrowing.	Decreasing Term Insurance
You’re on a tight budget.	Decreasing Term Insurance may be more affordable

Life Stages and the Right Policy

Your age and financial responsibilities also play a big role in the decision:

Young professionals in their twenties and early thirties may choose level term insurance mainly to secure affordable premiums, alongside a wide level of coverage for their family and children in the future.
Mid-life individuals with home loans or personal debts may prefer decreasing term life insurance for more targeted coverage tied to liabilities.
Older individuals nearing retirement may want to reassess their existing term plan. In such cases, you may wonder again: Can I reduce my term life insurance policy? The answer is still yes, but it’s essential to ensure the remaining coverage is adequate for any remaining responsibilities.

Conclusion

The choice between level term life insurance and decreasing term life insurance should be based on your personal and financial goals, the amount of money you need to protect, and the level of protection you want. If you care most about saving money and paying your loan or mortgage, decreasing term insurance is a good and affordable solution. Someone who wants broad coverage for their family or wants to be insured for any potential future needs might appreciate the greater security of level term life insurance.

FAQs

Is it better to have level term life insurance or decreasing term life insurance?

A significant benefit of level term life insurance is that the money can be used for various expenses beyond the mortgage. For example, people’s expenses may consist of utilities, childcare costs, and their hobbies. It may also be used to protect the mortgage that is owed. This is not the case with the payout from decreasing term life insurance.

What are the disadvantages of decreasing term insurance?

The coverage it provides decreases over time as your financial liabilities (loans or mortgages) are gradually paid off.

What are the disadvantages of level term insurance?

Level term insurance policies will eventually expire and will no longer provide coverage or any death benefits after that. There is no cash value build-up in level term policies.

What is true about a decreasing term life policy?

With decreasing term life insurance, you are covered for a specific period, but the death benefit gets smaller over the years. It is commonly used to pay for a mortgage or other types of loans.

What happens at the end of a decreasing term life insurance policy?

Gradually, the amount you receive from your decreasing term life insurance will go down until it is zero at the plan’s final year. With an interest-only mortgage, you are only required to pay the interest and not the loan amount.

Does decreasing term life insurance have cash value?

This process allows you to switch to a permanent policy later, and your current health status will not be considered by the company. Similar to other types, decreasing term life insurance does not build up any cash value.

What is another name for decreasing term life insurance?

A decreasing term life insurance policy is designed to last only as long as a specific loan or debt is being paid off. It is also known as reducing term life insurance.

Written by Neviya Laishram

1.7K Linkedin Followers

Reviewed by Vaibhav Kumar Kaushik

A senior editor with years of expertise, she fine-tunes content that connects, converts, and builds trust. She transforms heavy life insurance concepts into clear, aha-moment reads. Writing is her passion, and thinking ahead is second nature. When not wrangling words, she’s crushing game levels because every challenge is a puzzle waiting to be solved.