Decreasing benefit term life insurance is a policy that has a specified duration (term), a level premium, but a face amount of coverage that decreases each year. For example; a person may have a decreasing policy that starts with $250,000 of insurance in the first year and decreases to zero by year 20. The premium each month many be level at $25. At first glance this seems like a bad deal but it has very specific purposes. Decreasing insurance is usually matched with a decreasing liability (i.e. mortgage) and costs less than a level term policy. So the older couple in their fifties decides to purchase a new home and would like life insurance to protect them from mortgage risk. The cost of 20-year level life insurance may be $150/month, but they don’t need the additional insurance as the liability is paid down over time. So buying a policy where the coverage decreases with the liability is ideal. And they may save $100/month to implement this strategy.
Generally speaking, this type of coverage is recommended for situations like the one described above – where there is an amortized liability and the client has cash flow concerns that would prevent the purchase of a level policy. For younger Canadians a level policy tends to be very affordable and the additional insurance resulting from the decreased liability each year is helpful as people deal with new insurance needs (kids, increased income risk, etc…) throughout the various stages of life.
If you’re interested to know more about this type of insurance and would like a “hassle-free” quote, contact us HERE