Premiums in Decreasing Term Life Insurance

Life insurance is an essential measure that supports the financial stability of your family. Decreasing term life insurance, also known as reducing term life insurance, is considered one of the cheapest and most practical options for families who are balancing loans and obligations. As the name suggests, a decreasing term life insurance policy has a decreasing life insurance benefit amount; therefore, it is suitable for individuals repaying loans or other similar debts. Besides the benefits of the life insurance plans, a key consideration is the premium and how it changes with time and whether it suits your needs over time. This article provides a comprehensive outlook on the changes in premiums in a life insurance decreasing term policy and the differences in premium behaviour for level term insurance.

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How do Premiums Change in Decreasing Term Life?

Decreasing term insurance is meant to cover debts that diminish with time, such as a house mortgage or business loan. Under such policies, the sum assured decreases with each passing year while the premiums usually remain constant throughout the term. This is because, in such policies, the insurer assesses the total amount of risk over the entire policy term and spreads the cost evenly, resulting in fixed premiums despite the reduced coverage

Why Does The Coverage Decrease?

The primary idea behind a decreasing term life insurance policy is that the coverage requirement diminishes as loans are repaid or financial goals are attained. For example, if you take a 20-year home loan, the decreasing term policy is designed to correspond with the outstanding loan balance each year.

This approach helps provide financial security for your family by covering only the remaining debt, so you're not paying for unnecessary insurance coverage.

Can I Reduce My Term Life Insurance Policy?

Generally, people ask, "Can I reduce my term life insurance policy?" The answer depends on your company and the type of policy that you have.

If you own a level term plan, you may be allowed to reduce the sum assured; however, this usually requires reassessment.
In the case of a decreasing term life insurance policy, the sum assured decreases automatically, so you usually do not have to apply for a reduction.
The premium itself cannot typically be reduced unless there is an option to take a shorter term or lower sum assured at the outset.

Consider these factors before requesting a policy modification. Reducing your coverage might leave your dependents underinsured in case of your untimely death.

Cost Comparison With Level Term Policies

Decreasing term life insurance is generally cheaper than level term insurance. This is because the insurer's risk decreases each year.
Here’s a quick comparison:

Feature	Decreasing Term Insurance	Level Term Insurance

Sum Assured	Decreases annually	Remains constant
Premiums	Usually fixed	Usually fixed
Best For	Loan protection	Long-term income replacement
Cost	Lower	Higher

Are There Options For Decreasing Premiums?

Some newer insurance products, such as return of premium term plans or flexible term insurance policies, offer the option of linking premiums to the remaining sum assured, allowing both to decrease over time. However, this is still uncommon.

If you are specifically interested in a plan where both coverage and premium decrease with time, take a close look at the policy documents or consult your insurance advisor.

In India, insurers like ACKO offer various term insurance models; however, decreasing term insurance policies are generally issued with fixed premiums.

Things To Consider Before Choosing A Decreasing Term Policy

Some considerations on whether to choose a reducing term life insurance plan include:

Current Liabilities: Decreasing term insurance fits your case if you want to protect a loan or a similar decreasing financial obligation.
Long-Term Dependents: If your family will require financial support beyond your loans, a level term plan might be good.
Premium Affordability: The lower premiums can be alluring to younger buyers or those on a tight budget.
Policy Term: Set your period of insurance to match the duration of your debts.
Inflation: A diminishing benefit may offer limited value against future expenditures, especially in an inflationary country like India.

Is Decreasing Term Life Insurance Right For You?

Decreasing term insurance is suitable for covering fixed debts. It is not the best choice for long-term family protection. Indian policyholders with home or education loans typically benefit from this type of policy being linked to their loan tenor.

However, even though premiums remain the same, the policy may not adequately cover your future needs because the sum assured continues to decrease. Review your policy regularly, especially after significant life events such as marriage, childbirth, or career changes.

Conclusion

Decreasing term life insurance is an ideal option for individuals with mortgages or loans. Although paid premiums remain unchanged over time in a decreasing term policy, the policy aligns effectively with debts that decrease over time, such as home loans.

Before purchasing a term plan or making changes to an existing one, ensure you understand how the benefits and premiums are structured. This understanding will help you assess questions such as whether it is possible to reduce your coverage without ambiguity.

It is important to compare products, weigh your financial objectives, and seek professional advice if necessary. The most suitable decision will always be the one that fits your life journey.

FAQs

1. What is decreasing term life insurance used for?

Decreasing term insurance usually covers liabilities that diminish over time, such as mortgages or loans. The sum assured decreases annually in line with the principal amount outstanding.

2. Does the premium reduce in decreasing term insurance?

No, in most cases, the premiums remain fixed throughout the policy term, despite decreasing coverage.

3. Can I change my decreasing term insurance to a level term plan?

Generally, conversion is not allowed mid-term. If you wish to convert to a level term plan, you will have to purchase a new policy.

4. Is decreasing term insurance cheaper than other plans?

Yes, since decreasing term insurance provides less coverage over time, this reduces the risk to the insurer and brings down the cost in comparison to a level term policy.

5. Is it suitable for covering family needs?

Not always. Decreasing term insurance is ideal for loan protection and not for long-term financial support of dependents.

6. Can I reduce my term life insurance premium?

You may be able to reduce your premium by lowering the term of the policy or reducing the sum assured, but you need to check with your insurer first.

7. Which is better, level term or decreasing term insurance?

That depends on your needs. Level term insurance is more suited for the protection of families, while decreasing term is more suited to covering debts, such as home loans.

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.