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What's decreasing term insurance?

It is a type of term insurance where the policyholder pays a constant premium, but the coverage amount or the sum assured, decreases every year by a fixed percentage, either on a monthly, quarterly, or yearly basis. Decreasing term insurance, also known as mortgage term insurance, is usually bought by homeowners to pay off debts and loans to ensure their mortgage is settled after their death.

This term policy tends to be an economical way to protect one’s beneficiaries should the person die unexpectedly during a period when he/she has substantial financial responsibilities. In the event of the person’s demise during the policy period, the available sum assured is paid towards loan repayment thus taking care of the outstanding loan amount.

However, decreasing term policy is not just taken to cover mortgages. Some may choose this life cover because they do not feel the need of a big payout if they die in, say, next 10 to 20 years, and want to save money on premiums.