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Why Should I Choose Decreasing Term Life Insurance?

A term insurance plan offers you protection for a fixed period. The death benefit associated with term plans also stays fixed for the entire policy term. Generally, a term plan is opted for an extended period and thus, charges a higher amount of money as a premium. If you want financial coverage during a short period, a decreasing term insurance plan can provide everything you are looking for. A decreasing term insurance plan is flexible as per your needs. It is also far more affordable compared to other types of insurance plans.

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What is Decreasing Term Life Insurance?

There are times when you want to buy a term insurance plan that suits your pocket and has a shorter tenure. A decreasing term insurance plan is a type of term insurance in which the death benefit keeps decreasing overtime at a predetermined rate. This type of term insurance plan is comparatively more affordable than a whole life insurance plan.

Under a decreasing term insurance policy, the death benefit goes down by a scheduled percentage every year of the policy term. A decreasing term insurance policy also has a renewable feature, similar to a level term insurance policy. 

The upside to this condition is the low premium which is much more affordable for you compared to traditional term life insurance. Due to the decreasing nature of the sum assured, a decreasing term insurance policy does not involve high premiums. This difference in the payout structure sets a decreasing term insurance plan apart from a level term plan. 

For instance, if you buy a decreasing term insurance policy for 30 years. The face value of the policy is Rs.60 lakhs with an annual reduction of 6%. This means that the sum assured or the face value would decrease with a rate of 6% every year. 

If you pass away in the first year of the policy term, the nominee will receive the full death benefit of Rs.60 lakhs. If you die in the second year of the policy term, the nominee will receive the death benefit minus the reduction of 6% which comes to Rs.56, 40,000. 

This reduction would continue every year till the policy maturity or your death, whichever comes first.

Reasons for Choosing Decreasing Term Life Insurance

You must go for a decreasing term insurance plan as opposed to a regular term insurance plan. The most prominent reason for this is their affordability and flexibility. There are many more reasons as to why you should choose a decreasing term insurance plan to provide a financial blanket over your family.

  • Affordability: The most attractive feature of a decreasing term insurance plan is that it is extremely affordable as compared to level term plans. This is because the death benefit keeps on decreasing as the policy term continues. You must opt for a decreasing term insurance plan if you are looking for a budget-friendly term insurance plan.

  • Flexibility: Decreasing term insurance plans are known for their flexibility. The policy can be customized in whatever manner you desire. You can customize a decreasing term insurance policy by adding rider options such as accidental disability, terminal illness, and many others. By adding such riders, you can elevate the value of your investment to a great level. 

  • Tax Benefits: If you decide upon investing in a decreasing term insurance plan, you can save money in the form of income tax deductions. As per Section 80C of the Income Tax Act, 1961, the premiums which you pay are deductible up to a limit of Rs.1.5 lakhs. Also, under Section 10 (10D), the death benefit is exempt from income tax. By choosing to invest in a decreasing term insurance plan, you get financial coverage along with saving your tax money. 

  • Optimum Coverage: A decreasing term insurance plan gives you optimum coverage throughout your life. You may have opted for a high amount of coverage at a young age, but with time liabilities decrease. This makes such term plans beneficial as you do not need high coverage later in life. The decrease in the death benefit enables you to fulfill your ever-changing financial goals.

  • Deals with Liabilities: Long-term liabilities such as housing loans, car loans, education loans, etc. are paid off till retirement. However, there may be some pending expenses that remain later in life. You must make sure that your family does not suffer because of those liabilities. By choosing a decreasing term insurance policy, you can secure a financial cover over your family to meet pending liabilities such as short-term debts. Your family would be protected against expenditures after you are gone.

  • Easy to Understand: Another important benefit of choosing a decreasing term insurance plan is that plan conditions are very easy to understand. Even if you are not well-versed in financial terminology, you will not find difficulty in understanding the terms and conditions of a decreasing term insurance plan. 

What is the Right Time to Buy Decreasing Term Life Insurance?

With the help of level term insurance, you would be able to take care of needs such as car loans, houses, children’s education, etc. These needs arise in the early stages of a person’s life. However, in later stages of your life, liabilities tend to decrease. At that time, you may not want to pay the same amount of high premiums as before. 

With fewer responsibilities and expenses, you must opt for a plan like decreasing term life insurance. Under this policy, you would pay decreasingly low premiums in line with the narrowing liabilities of old age. The right time to buy a decreasing term insurance plan is when you do not have many long-term liabilities left in life. 

In Conclusion

A decreasing term insurance plan benefits you by helping you fulfill your short-term financial goals. Since the death benefit decreases with the policy term's progression, it is easier for you to cope with the decreasing liabilities of advanced age.

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FAQ's

  • I am in my 20s and have started earning recently. Would buying a decreasing term insurance plan be fruitful for me?

    Yes, if you buy a decreasing term insurance plan now, you will receive a decreasing death benefit later in life. If you, unfortunately, die in the first year of the policy term, your nominee would receive a full death benefit payout.
  • Would the premiums also decrease along with the sum assured under a decreasing term insurance plan?

    Under a decreasing term insurance plan, you pay lower premiums as compared to those with a level term plan. However, the premiums stay the same throughout the policy term. They do not decrease with a rate similar to the sum assured. The premium which is decided at the commencement of the policy would not change throughout the policy term.
  • Under a decreasing term insurance plan, what would be the maturity benefit in case I survive the entire policy term?

    If you survive the complete policy term, you will not receive a death benefit under a decreasing term insurance plan. This rule is the primary rule of any term plan. If the policyholder does not die during the policy term, no benefit would be paid to them or their nominee at the time of policy maturity. 
    If you have opted for a return of premium term plan, you can get the entire premium amount as a payout on the maturity of the policy. However, in that case, you would pay higher premiums.
  • As a policyholder, am I free to decide on the decreasing term life insurance plan?

    Yes, a decreasing term insurance plan is flexible and lets a policyholder decide the term of the policy. If you opt for such a plan, you would be free to decide the policy duration as per your needs and suitability.

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