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Decreasing term life insurance is a type of term insurance in which the sum assured or the life cover decreases over the term of the policy. Because of the decreasing life cover, the premiums for this plan are highly affordable. These plans are best suited for individuals whose financial dependents are expected to decrease over time. Let us learn more about decreasing term insurance.
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Most of the features of a decreasing term insurance plan are similar to that of a term insurance plan. When it comes to a decreasing term plan, the cover that is provided within the policy will keep decreasing each year at a predetermined rate. It is to be noted that the premium that is paid by the policyholder will remain the same during the complete policy term.
The policyholder can decide the duration of the plan. Although the risk of the plan reduces even then the premium of the plan mostly remains unchanged. The premium rates for the plans are also low when compared to any term insurance plan wherein the sum assured of the plan remains equivalent. Upon the maturity of the plan, the sum assured is zero and when the sum assured is paid to the nominee upon the demise within the term plan then the sum assured will be paid applicable for the year.
Term Plans
Let us understand how decreasing term insurance works with an example:
Suppose Raman bought a decreasing term life insurance to secure his wife and two kids. The policy had a life cover of 1 Crore for a 30 year policy term. Raman purchased a decreasing term plan because he thought his kids would be independent with their own jobs to support themselves and the remaining sum assured would cover his wife’s financial needs in his absence. If Raman passed away in the 25th policy year, his wife would receive the decreased sum assured. She uses the amount to pay for the funeral costs and cover her monthly expenses.
* You can use a term plan calculator to estimate the exact premium amount you would need to pay for your term insurance policy.
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Listed below are some of the benefits of a decreasing term life insurance plan:
Pocket-friendly
Decreasing term insurance plan is one of the most pocket-friendly types of term insurance among all the insurance products available in the market. While term insurance is much more affordable than life insurance, decreasing term life insurance is more budget-friendly than regular term plans.
Policy Term
With term insurance, you can choose the right policy term for your needs and secure your family. You can assess your financial obligations and select a tenure that covers you until your liabilities have decreased. However, you need to make sure that the company of your choice offers reducing term life insurance plans.
Taking Care of the Liabilities
The family can use the benefit amount to pay off any remaining loans like business, student, home, or personal loans, along with helping them take care of their financial needs and obligations in your absence.
Flexibility
When it comes to a term insurance plan, the key highlight is that it provides flexibility. Moreover, the plan can be enhanced by choosing certain term insurance rider options. In case of a decreasing term insurance plan, rider options such as accidental disability, terminal illness, etc, can be chosen to enhance the base coverage of the policy.
Tax Benefits
In case of a decreasing term life insurance plan, the premiums are entitled to a tax deduction of Rs 1.5 lakh within Section 80C. The benefits obtained from the term plan are tax-exempted within Section 10(10D). Most importantly, the tax benefits are subject to the provision and are amended regularly.
Now that we have understood what is term insurance, we know decreasing term life insurance plans are best suited for people who want to cover their dependents but think their liabilities may decrease with age. Financial liabilities such as a car loan, a home loan, or any other sort of personal loan are either decreased or have been paid off during the policy term, which reduces the expenses. Therefore, the best time to buy decreasing term insurance is as early as possible because then you would be able to secure a large life cover at affordable premiums.
The primary objective behind the purchase of a life insurance product is to provide financial stability for your loved ones. If you have financial dependants that may not remain dependent on you for a long term, you can by decreasing term life insurance. Apart from a decreasing life cover it has a lower premium rate when compared to any other term insurance plan.
Note: Check out the best term insurance plan in India and choose one that suits your requirements.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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