06 Sep, 2022 | Term Life Insurance

Is Decreasing Term Insurance The Right Choice For You?

Aakansha Jain
By Aakansha Jain
Budding Content Developer at Beshak
😐 0
Not so great
😃 0
It’s helpful
🤩 6
It’s perfect!

As soon as you start working, you begin saving money and building up your assets. In your 20s and 30s, you may want a car or bike, a house, etc. Then you may eventually get married and have kids, you may want them to fulfil all their dreams. You may take  loans to pay for all of this - buying a vehicle, a house, funding your child's education, etc. You decide to get a term insurance plan so these loans won't be a burden on your loved ones if something unfortunate happens to you. As you get older, in your late 50s or early 60s, the burden subsides, and hence, your insurance needs will be lower. 

So, is there a term insurance plan available that fits your decreasing financial responsibilities? Well, there is! A Decreasing Term Insurance Plan is a variant of term insurance that is specifically designed to cover your decreasing needs. In this article, let’s learn about this lesser-known term insurance plan, and understand how it works. 

Let’s dive right in!

What Is Decreasing Term Insurance?

Decreasing Term Insurance, as the term implies, is a type of Term Insurance Plan, where the sum assured keeps on decreasing on a predefined basis. It decreases gradually over the span of the policy until it reaches a maximum limit of 50% of the base sum assured. 

How Does A Decreasing Term Insurance Plan Work?

  • Basically, after you select the features, benefits, etc. that are right for you, the insurer will issue the Decreasing Term Insurance Plan to you.
  • You’ll have to pay the premiums based on the premium payment term and frequency you choose at the time of purchase.
  • Over time, the sum assured of the policy will start reducing at a predetermined rate, usually every five years. 
  • The sum assured will keep on decreasing until it reaches a maximum of 50% of the base policy cover.
  • In case you pass away in the middle of the policy tenure, the applicable sum assured in that year will be paid to your nominee. And then, the policy will end. 

Let’s understand how a Decreasing Term Plan works with the help of Yash’s example.

Yash has an outstanding home loan of Rs. 2 Crore and hence, decides to buy a Decreasing Term Insurance Plan. He chooses a sum assured of Rs. 2 Crore and a policy term of 40 years. Let's assume that the sum assured will reduce by 10% starting from the 6th policy year. And, it will keep on reducing till it reaches a maximum of Rs. 1 Crore (50% of the base sum assured).

Let’s see how the sum assured will reduce under Yash’s Decreasing Term Insurance Plan.

YearHow Will The Sum Assured Decrease?Sum Assured Applicable
Year 1 to Year 5No decrease2 Crores
Year 6 to Year 102 Crores minus 10% of 2 Crores1.8 Crores
Year 11 to Year 151.8 Crores minus 20% of 2 Crores1.6 Crores
Year 16 to Year 201.6 Crores minus 20% of 2 Crores1.4 Crores
Year 21 to Year 251.4 Crores minus 20% of 2 Crores1.2 Crores
Year 26 to Year 401.2 Crores minus 20% of 2 Crores1 Crore

This is how the sum assured will keep on reducing and in case Yash passes away in the middle of the policy term, the sum assured applicable in that year will be paid to his nominee. So, if he passes away in the 9th policy year, the insurer will pay Rs. 1.8 Crores to his nominee. And in case he passes away in the 24th policy year, his nominee will receive Rs. 1.2 Crores.

How Is A Decreasing Term Insurance Plan Different From A Regular Term Insurance Plan? 

Here are a few key differences between a decreasing and regular term insurance plan.

 Decreasing Term InsuranceRegular Term Insurance
Sum AssuredIt keeps on decreasing at specific intervals.It remains fixed throughout the policy tenure.
Premium PayableThe premiums will be a bit lower compared to Regular Term Insurance.The premiums will be a bit higher compared to Decreasing Term Insurance.
Death BenefitThe death benefit your nominee will receive will depend on the year you pass away. Your nominee will receive a death benefit chosen by you at the time of policy purchase.
SuitabilityYou can buy this plan if you want to protect your family from the burden of loan repayment.You can buy this plan if you want to safeguard your family’s financial future.

How To Decide If A Decreasing Term Insurance Plan Is Right For You Or Not?

The idea behind a Decreasing Term Insurance Plan is that as you age, your financial responsibilities, loans/liabilities, etc. will decline. As a result, the need for a high life insurance cover will also decrease. 

For instance, if you just got married and are planning to start a family, you would probably have a fair number of financial obligations and loans. You may have taken some loans, plus, you may have the cost of raising a child. During this period, you’ll obviously need a large insurance cover. But, after your loans are settled and your child has graduated and has become independent, you would likely not need the same amount of insurance cover. In such a case, a Decreasing Term Insurance might be a great option. 

A Decreasing Term Insurance Policy can either be age specific or linked to your debt or loans. You can consider buying it if - 

  • You think you’ll be done with all your major financial obligations and won’t have any visibility of financial dependents in the later years of your life.
  • You have loans/liabilities and don’t want the burden of repaying these loans to fall on your family’s shoulders - if you pass away before settling them. 

Wrapping Up!

Unlike a Regular Term Plan, where the sum assured remains fixed throughout the duration of the plan, the sum assured under a Decreasing Term Plan reduces at specific intervals. So, if you are looking to buy an insurance plan solely to cover your loans/liabilities, a Decreasing Term Plan can be a good fit for you. It will ensure that the burden of your loans/liabilities doesn’t trouble your loved ones if you pass away before settling them.

Got a query related to Decreasing Term Insurance Plans?

Post it on the Beshak Insurance Forum and get answers from insurance experts, for free!

Key takeaways
  1. Under a Decreasing Term Insurance Plan, the sum assured keeps on decreasing gradually over the span of the policy until it reaches a maximum limit of 50% of the base sum assured. 
  2. In comparison to Regular Term Insurance, the premiums of a Decreasing Term Plan will be a little lower.
  3. A Decreasing Term Insurance Policy can either be age specific or linked to your loans or liabilities.
  4. A Decreasing Term Insurance Policy is based on the idea that as you age, your debts, liabilities, and other commitments will decrease. And hence, the need for a high life insurance cover will also decrease. 
  5. You can buy this plan if you want to protect your family from the burden of loan repayment or if you don’t have any visibility of financial dependents in the later years of your life.
Aakansha Jain
Written by,
Aakansha Jain, Budding Content Developer at Beshak

Aakansha is a Content Ideator and Writer at Beshak. With her easy-to-understand content, she makes insurance simple for everyone. She comes with a strong background in finance and commerce and wants to help families make positive insurance decisions that are good for a lifetime.

Tired of dealing with call centers!

Get a professional advisor for life!

LIFETIME FREE

Rs. 1799

or

0 Comments
TAGS:
Term Life Insurance
Purchase
Opinion
Basics of Insurance
Discover the best tips for insurance every week!

Beshak is not regulated by the Insurance Regulatory and Development Authority of India (IRDAI) and does not have any alliance or association with any Insurance business.
© Copyright 2022 Beshak Solutions Pvt. Ltd. All Rights Reserved.

Disclaimer: The content on the website is purely for information purposes for the public at large, and does not constitute personal financial advice for a specific individual reader.
If you are reading this, it means you love reading the fine print. Why not get paid for what you love doing - Join us by writing to info@beshak.org now 🙂