What is decreasing cover Term Life Insurance?

Introduction

As time passes, your loved ones become less financially dependent on you. To match this, decreasing cover term life insurance plans provide you with decreasing life cover over time. This type of insurance plan is particularly helpful if you have a heavy financial loan, such as a home loan, that you do not want to burden your loved ones with if you pass away.

In this blog, we'll discuss everything you need to know about decreasing-level term life insurance plans, including what they are, how they work, and whether they're right for you.

So just give this short article a quick read to know everything about Decreasing cover-term plans, But still, if you get stuck anywhere while choosing the best term plan for you, you know who to call

What is decreasing cover-term life insurance?

A decreasing term insurance policy is a type of life insurance that includes a feature where the payout amount decreases over time, usually on a monthly or yearly basis. This means that the policy size will get smaller and smaller until the end of the coverage period, or until the policy pays out.

So, in short -

Decreasing term life insurance is a policy that provides a decreasing payout over time. If you were to pass away earlier on in the policy's term, your beneficiaries would receive a larger payout compared to if you were to pass away later on in the term.

Some features and facts about Decreasing cover term plan

1. Suitable for Covering Outstanding Debts

A decreasing term insurance policy is a good option for covering financial obligations like loans because the decreasing payout aligns with the decreasing loan amount over time. This makes the insurance policy more affordable and renewable.

2. Reduced Premium Payments

Since the coverage amount of decreasing term insurance decreases over time, the premiums charged by the insurance provider are generally lower than those of level term insurance. The decreasing risk over time results in lower premiums.

3. Decreasing Term Life Insurance for Adjusting to Decreasing Expenses

Decreasing term life insurance can be a cost-effective way to ensure that your family members and children are financially secure if you are sure that they will gradually become less dependent on your income as time goes on.

4. Small Business Financing

Additionally, decreasing term insurance is suitable for small business proprietors who require debt financing to operate their businesses. In case of the proprietor's death, the insurance policy acts as a backup plan for the repayment of the debt.

5. Terminal illness and Critical illness riders

Most decreasing-term life insurance policies offer riders such as terminal and critical illnesses. A terminal illness rider is usually free and lets you access a portion of the death benefit while still alive to cover expenses like hospice care. A critical illness rider is optional and provides a tax-free lump sum if you're diagnosed with a serious condition like cancer or stroke. Insurers may have different lists of covered conditions, so it's best to research their policies.

How does a decreasing cover term plan work?

Let's say  a person were to get in touch with a Ditto financial advisor, and the advisor helped them choose the right decreasing cover term plan

Here's a table that shows how a decreasing cover term plan with an annual premium of Rs. 5000 would work:

In this example, the policyholder takes out a 5-year decreasing cover term plan with a coverage amount of Rs. 50 lakhs, and a premium amount of Rs. 5000 per year.

Now, imagine the policyholder's loved ones need financial support if something happens to them. In the first year of the policy, if something happens to the policyholder, their dependents will receive Rs. 50 lakhs as coverage. However, as time passes, the coverage amount decreases.

In the fifth year of the policy, if something happens to the policyholder, their dependents will receive Rs. 30 lakhs as coverage. This is because the coverage amount decreases every year, in line with the decreasing financial obligation.

So, one can think of a decreasing cover term plan as a superhero's way of ensuring their sidekick is protected, even if something happens to the superhero, where the policyholder is the superhero with their loved ones as their sidekicks. The coverage amount decreases over time, but it ensures that the sidekick is not paying for more coverage than they need.

Decreasing term plan Vs. Level term plan

Both decreasing cover term plans and level term plans have their own advantages and are suitable for different types of people based on their needs and financial goals.

Let's say you take out a home loan of Rs. 50 lakhs for a tenure of 20 years. You want to ensure that your family is financially protected in case of your unexpected demise during the loan tenure.

You have two options: a level term plan and a decreasing cover term plan. Let's compare the two options in a table:

As you can see from the table, a decreasing cover term plan provides adequate coverage for your home loan liability, ensuring that your family is financially protected in case of your unexpected demise during the loan tenure. It also helps you save on premiums, as you are only paying for the coverage you need at any given time.

Overall, a decreasing cover term plan is a great option for protecting your loved ones' financial interests in case of unexpected demise, especially if you have a liability such as a home loan that reduces over time.

A level-term plan provides a fixed sum assured throughout the policy term. This means that the insurance cover remains the same throughout the policy term. It is suitable for people who have a fixed financial obligation and want to ensure that their loved ones are financially protected in case of their unexpected demise.

On the other hand, a decreasing cover term plan provides a decreasing sum assured over the policy term. This means the insurance cover decreases over time, usually in line with a decreasing liability such as a loan or mortgage. It is suitable for people who have a decreasing financial obligation over time and want to ensure that their loved ones are financially protected in case of their unexpected demise.

If an individual has expenses or debts they want to cover when they pass away and their beneficiaries won't need their income in the long run, decreasing term life insurance can be a good choice. For instance, if the spouse has their own income or the children are grown-up and self-sufficient. On the other hand, non-decreasing life insurance may be better if loved ones will need the original death benefit amount even when the individual dies at an older age while the policy is still active.

Therefore, It is always advisable to assess your financial goals and obligations before choosing a term plan and consult with a financial advisor to determine the best option for you.

Conclusion

So, in conclusion, we can say that decreasing the cover-term life insurance policy may be a suitable option for some individuals, but it may not be the best choice for everyone. It is essential to carefully evaluate your financial needs and goals before making a decision regarding life insurance coverage.

Overall, a decreasing cover-term life insurance policy can provide a cost-effective and tailored solution for individuals seeking to protect their loved ones' financial interests in case of their unexpected demise. It is advisable to consult with a licensed insurance professional to understand your options and make an informed decision that suits your individual needs and circumstances.

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