What is Decreasing Term Life Insurance?
There are plenty of options available nowadays for life insurance policies, starting from unit-linked plans, endowment policies to money-back plans and others. Term life insurance is also a form of life insurance which is referred as a pure protection plan with zero risks of investment. And one such term policy is decreasing term life insurance policy wherein the death benefit or the sum assured amount keeps decreasing over the time at a pre-defined rate.
Decreasing term life insurance policy is more affordable than other forms of term life insurance, and the premiums paid remains constant throughout the policy term. It’s a smart option to opt for if you want coverage for temporary requirements.
Features of decreasing term life insurance policy
Although, majority of features of term life insurance and decreasing term life policy are similar, just unlike the regular term plans the sum assured in decreasing term policies decreases every year throughout the entire duration of the policy. Here are some more features:
- The policyholder decides the tenure of the policy.
- The premium remains the same throughout the whole policy term even though the risk cover of the policy also gets reduced
- The premiums of decreasing term plans are lower than the regular term plans.
- As the policy reaches its maturity, the sum assured decreases to zero.
- In case of the policyholder’s demise during the tenure of the policy, then the sum assured applicable in that year is paid to the beneficiary.
How Decreasing Term Life Insurance policy Works?
In a regular term life insurance policy, you can opt from different policy tenures (between 5 to 30 years). In case of your death within the policy term, your family members receive a lump sum amount, also known as the death benefit. However, under a decreasing term life policy, the death benefit gets reduced every year at a fixed percentage. Let’s take an example to understand its working in a better way.
So, let’s assume Rakesh, who is 25 years old, has taken a decreasing term insurance policy with a sum assured of Rs 30 lakhs and term 30 years. As per the plan, every year the sum assured gets reduced by 5 percent simple rate of interest. Therefore, since from the first year of the policy, the sum assured starts reducing which means at the end of the first year of policy the death benefit amount will be Rs 29 lakhs, in the second year it will be Rs 28 lakhs and so on. And at the maturity of the policy, the death benefit amount will be zero. The death benefit payout amount will keep decreasing until it is paid to the beneficiary in case of the policyholder’s demise.
Why should you opt for a decreasing term life insurance policy?
The answer to this question is many times the need for high insurance coverage among individuals decreases with age. As various liabilities like home loan, car loan gets paid off, which in return reduces their permanent expenses. Another prime reason to opt for this policy is the low rate of premium as compared to other term life insurance policies.
Is it a good bet to invest in?
Decreasing term life insurance policy could be an ideal choice if you have temporary needs to cover, such as education loan, mortgage, auto loan, personal loan, or partnership/ business loan. Even if you have little debt to no debt or plan to pay off some loan, a decreasing term plan could be an economical option for short- or long-term coverage.
Now, let’s discuss the benefits of decreasing term life insurance policy.
- Temporary requirements of life: In case you have a mortgage, which you want to pay off then decreasing term insurance is a good option to opt for. Decreasing term life insurance provides financial assistance when you needed the most.
- Affordable: The premiums of decreasing term life insurance policy are lower than even the regular term life insurance. As the sum assured of the policy gets reduced with time; hence the premiums are on the lower side. Due to these low premiums, it’s pocket-friendly way to secure your family financially.
- Tax benefit: Like the regular term plans, decreasing term life policy too provides tax benefits. Besides being low, the premiums paid against the policy are also tax-free with a maximum limit up to Rs 1.5 lakhs under Section 80C of the Income Tax Act.
Overall, it is beneficial if you know that your expenses will be most likely to decline over a period of time as the dependents will become independent and you will be able to pay off your loans etc. If you are also looking for more information regarding decreasing term life insurance policy, then you can visit BimaKaro.in and request a call back from the insurance expert.