How does decreasing term insurance work?

Decreasing term insurance is designed so that the coverage amount, or death benefit, decreases over time, typically at a predetermined rate. This type of policy is tailored to meet the needs of individuals who may require less coverage as they age, perhaps because they are trending toward paying off debts or reaching a point of financial independence. While the premiums for a decreasing term policy usually remain level throughout the policy term, the key feature is that the sum insured diminishes over the period of coverage.

This structure makes decreasing term insurance especially useful for specific situations, such as paying off a mortgage, where the obligation decreases as payments are made. It contrasts sharply with other life insurance options, where premiums or coverage might fluctuate in different ways or remain constant. The other responses do not accurately describe the mechanics of decreasing term insurance, highlighting the unique characteristics of this type of policy.