Decreasing term insurance

Decreasing term insurance is a type of life insurance where the death benefit declines over the policy’s term while premiums typically remain level, such as a $200,000 policy reducing to $0 over 20 years. Borrowers often use decreasing term insurance to match declining mortgage balances; for example, in 2022, 38% of new homebuyers considered it for mortgage protection.

Insurers like State Farm and Nationwide offer decreasing term policies specifically tailored to mortgage or loan schedules. Unlike level term insurance, the payout on decreasing term drops each year, so beneficiaries receive less if the insured dies later in the term.

Decreasing term policies cost about 10%–30% less than level term due to the shrinking risk exposure; for example, a $100,000/20-year policy for a healthy 35-year-old averages $10/month versus $13/month for level term, as stated by YourInsuranceInfo. Insurers generally do not allow coverage increases or renewal beyond the original decreasing schedule.

Lenders sometimes require proof of decreasing term life insurance when originating certain loans (e.g. FHA-insured mortgages), particularly from banks like Wells Fargo and Quicken Loans in 2023.

Some insurers include riders for terminal illness, letting policyholders access benefits early if diagnosed with conditions like stage IV cancer. Decreasing term is not convertible to permanent insurance with most major providers, including Prudential and Allstate as of 2024.

Applicants must pass standard underwriting (medical exam and health questions) since no insurers offer guaranteed issue decreasing term in the US as of June 2024. Surrender values are always zero because these policies never accumulate cash value or pay out living benefits except via specified riders (such as chronic illness).