Term insurance is one of the simplest and most affordable types of life insurance policies available. It has two types: regular and decreasing.
Decreasing term insurance plan works similar to regular term insurance but with one big difference. In decreasing term insurance, the sum assured that you agreed upon in the policy decreases every year at a certain rate.
So, in the case of decreasing term insurance, the sum assured at the time of maturity of the plan will be zero. The premium for decreasing term insurance is generally lower than that of regular term insurance and stays the same throughout the policy.
Let us understand with an example.
Rahul purchased decreasing term insurance with a sum assured of Rs 1 Cr. The decreasing rate is set at 5% per year. Rahul meets with an accident and loses his life during the 2nd year of the policy. Since it’s decreasing term insurance, the sum assured that his family will receive is Rs 95 Lakhs, i.e., 1 Cr less 5%. If he died during the third year, then the family would receive Rs 90 lakhs.
Decreasing term insurance is a good option if you are looking to buy specifically to cover liabilities. If you have taken a loan for a home or a car or you have any liability in business, then this plan will ensure that your family does not have to pay for your debts after you are gone. As you pay your loans, the sum assured will reduce too.