Digit Glow Term Life Insurance

0% GST on Premium

Date of Birth

Annual Income (In Lacs)

Mobile Number +91

I agree to the Terms & Conditions

Written By

Fathima Tabasum

Reviewed By

Ashok Manwani

What is Decreasing Term Life Insurance & Who Should Opt?

Your financial needs change as life moves forward; the hefty mortgage you took today might be fully paid off years down the line, and other debts may slowly fade away.

So, why continue paying for the same high insurance coverage when your responsibilities are decreasing?

A decreasing term insurance plan is designed for situations where your financial obligations, such as loans or mortgages, reduce over time. With this plan, the coverage amount decreases gradually as your debts are paid off, often keeping the premium cost lower than that of a standard term plan.

Let’s break down how it works, its advantages, and when it can be the ideal fit for your protection needs.

What is a Decreasing Term Life Insurance Policy?

Decreasing term life insurance is a type of life insurance policy where the level of coverage reduces gradually over the policy term, either on a yearly or monthly basis. The benefit amount continues to decrease until the end of the term or until a claim is made. Meanwhile, the sum assured decreases over the years, but the premium you pay remains the same.

How Does Decreasing Term Insurance Work?

Decreasing term insurance is designed to align your life cover with your declining financial liabilities, especially loans. It offers structured, cost-efficient protection that evolves with your repayment journey.

Coverage That Reduces Over Time

The sum assured gradually decreases through the policy term, mirroring your reducing loan or financial commitments. This ensures you’re not overinsured when liabilities drop.

Fixed Premium, Declining Benefit

Even as the cover amount falls, your premium usually remains constant throughout the tenure. It’s simple, predictable, and easy to budget for.

Ideal for Loan Protection

Commonly chosen by borrowers, this plan ensures that if something happens to you, your outstanding debt is cleared without burdening your family.

Cost-Efficient Protection

Since the insurer’s risk reduces each year, the premium is typically lower than that of a level term plan, offering smart financial protection tailored to need.

Key Benefits of Decreasing Term Insurance Plan

Here are the key features of a decreasing term life policy:

Affordable Premiums

Decreasing Term Plan costs less than pure risk term plans, making it an economical choice, but the coverage amount reduces over time.

Rider Flexibility

Decreasing Term Plan allows you to enhance protection by adding optional riders including cover for accidental death, accidental disability and terminal illness.

Optimum Coverage

The sum assured reduces in line with your decreasing liabilities over time, ensuring you maintain just the right level of protection.

Support with Loan Repayment

Decreasing Term Plan is often preferred by individuals who have long-term loans as the policy is designed to reduce in line with the outstanding debt.

When Should You Buy a Decreasing Term Plan?

A Decreasing Term Plan (DTP) is ideal when your financial responsibilities are expected to reduce steadily over time — such as when you’re repaying long-term loans. It’s a practical, cost-effective option for those who want protection that mirrors their liability pattern.

When You Have a Home or Mortgage Loan

As your loan balance decreases every year, your insurance coverage reduces in the same proportion — keeping protection adequate but affordable.

When You’re Managing Personal or Education Loans

In the event of your absence, the payout will be sufficient to settle the outstanding loan, thereby preventing your family from facing repayment stress.

When You’ve Taken a Business or Equipment Loan

A Decreasing Term Plan ensures business continuity by covering the remaining loan liability, thereby protecting both your enterprise and your family’s financial stability.

What are the Pros and Cons of Decreasing Term Insurance?

The following table highlights the pros and cons of decreasing term life insurance:

Factor	Pros	Cons
Cost	Decreasing term life insurance typically costs less than other types of life insurance, making it a more budget-friendly choice, especially for those purchasing coverage for the first time.	The policy decreases at a set rate each year, while your mortgage interest rate can fluctuate. This means your cover could fall short of the outstanding mortgage balance if interest rates rise.
Benefit Pattern	You only pay for the amount of coverage you need. As your outstanding debts are reduced over time, so is your coverage, which helps keep the policy cost-effective.	Since the cover amount reduces over time, it would not be able to clear the full balance of an interest-only mortgage at the end of the term.
Coverage Applicability	This type of cover can be tailored to repay specific debts, such as a repayment mortgage or other loan commitments. If you were to pass away during the term, your beneficiaries would receive a lump sum to settle those debts.	If the policy is taken solely to protect your mortgage, it may not leave enough to cover other expenses, such as funeral costs. Combining it with a level term life insurance policy can help address this gap.

When is a Decreasing Term Plan Not the Right Fit?

While decreasing term insurance is ideal for covering loans and short-term liabilities, it may not suit every Indian household. Consider the following scenarios:

Limited Coverage for Future Financial Goals

If your focus is on long-term needs like your child’s higher education, marriage, or medical expenses, a decreasing plan may fall short, since coverage reduces while these costs often rise.

Vulnerable to Inflation

Over time, inflation diminishes the real value of money. As your coverage amount keeps reducing, the payout may not be enough to meet your family’s actual expenses in future years.

Not Meant for Lifestyle Protection

Decreasing term insurance is designed for loan repayment, not for maintaining your family’s standard of living or funding multiple goals after your absence.

No Savings or Investment Element

These are pure protection plans, they don’t build cash value, returns, or maturity benefits. Once the term ends, there’s no payout if no claim is made.

Comparison Between Decreasing Term Plan vs Other Term Plans

The following table shows a comparison of decreasing term insurance and other insurance plans:

Parameter	Decreasing Term Insurance	Increasing Term Insurance	Level Term Insurance
Premiums	Usually fixed, although the cover amount reduces over time.	It is the most expensive term plan, as the coverage increases over time.	Fixed for the full term, with the payout amount unchanged.
Coverage Needs	Designed for people whose obligations decline over time, such as paying off a home loan.	Well-suited for individuals expecting higher financial responsibilities in the future.	Suitable for those with steady and predictable financial commitments.
Financial Planning	Matches reducing liabilities, avoiding unnecessary coverage and helping manage costs effectively.	Offers protection that keeps up with inflation and growing living expenses.	Provides consistent protection, offering certainty for dependants.
Affordability	Often, the most budget-friendly type of life insurance.	Relatively affordable since premiums are fixed at the start, yet coverage keeps rising, offering good value for money.	Generally costs more than a decreasing term plan.
Death Benefit	Benefit paid decreases as the years pass.	The cover amount rises as the years progress.	The cover amount stays fixed for the entire policy term.
Target Audience	Tailored for borrowers or those with gradually decreasing financial responsibilities.	Ideal for individuals anticipating major life changes, such as career growth or starting a family.	Best for people with clear, long-term financial planning needs.

FAQ

What is the process in a decreasing term insurance plan?

In a decreasing term insurance plan, you choose the policy duration, which is often between 5 and 30 years, along with the initial sum assured. Over time, the payout your beneficiaries would receive would be reduced by a fixed percentage at set intervals, such as yearly or monthly, depending on the policy terms.

What is the outcome when a decreasing term life insurance policy ends?

In a decreasing term life insurance policy, the payout amount gradually reduces during the policy period. If the policyholder passes away or is diagnosed with a terminal illness while the cover is active, the beneficiaries receive a tax-free lump sum. By the time the policy term finishes, the payout amount reduces to zero.

Is it possible to cancel a decreasing term life insurance policy?

Yes, you can end a decreasing term life insurance policy if it no longer suits your needs, you want to make adjustments, or you no longer need the coverage.

Is a decreasing term life insurance policy a good option?

A decreasing term life insurance policy can be a good choice if you have a specific financial commitment that decreases over time, such as a business loan, car loan, or similar type of debt. In such cases, choosing a policy that aligns with your outstanding balance can be beneficial.

What are the downsides of decreasing life insurance?

The key disadvantage is that the payout amount decreases as the policy progresses, which is the main reason it is usually less expensive than regular term life insurance or other types of insurance. Another concern is that, if an unexpected event occurs later in the policy term, the reduced cover might not be sufficient.

Does decreasing term insurance come with a cash value or a savings component?

No, a decreasing term insurance plan is purely designed to offer financial protection and does not build any cash value or savings component. Since it lacks an investment component, there is generally no maturity benefit at the end of the policy. In most cases, surrendering the plan midway also does not provide any surrender value. Therefore, it is advisable to keep the policy active for the full term to ensure uninterrupted coverage.

Who should choose a decreasing term insurance plan?

A decreasing term insurance plan is well-suited for individuals with liabilities that gradually reduce over time, such as a mortgage, vehicle loan, or other long-term borrowings. The sum assured decreases in line with the outstanding debt, making sure that the nominees remain financially protected while avoiding unnecessary extra premium payments for excess coverage.

What types of debts can you cover with a decreasing term plan?

A decreasing term plan can be used to cover most forms of debt. However, it is particularly effective for large financial commitments such as home loans, ensuring that repayment does not fall on your family if something happens to you. This way, major liabilities can be managed without creating financial strain for your dependents.

Are decreasing term plans cheaper than regular term policies?

Yes, decreasing term insurance is generally more economical than standard term policies. The reason is that the cover amount decreases over time, typically aligning with the decline in loan repayments or other liabilities. Since the insurer’s risk lowers with time, the premiums are typically lower compared to standard term policies, making these plans a cost-effective option.

Can I obtain a critical illness cover with a decreasing term plan?

Yes, you can enhance a decreasing term policy by adding a critical illness rider. However, once this additional cover is included, the overall premium amount will rise to account for the extra protection.

Can I renew a decreasing term insurance plan?

Yes, decreasing term insurance plans can be renewed without the need for another medical examination. Nevertheless, while the coverage amount remains constant during each renewal period, premiums generally increase at every renewal, or in some cases, after a few years.

Does decreasing term life have cash value?

A decreasing term insurance plan is purely protection-based. It does not accumulate cash value or include a savings component. This means there is generally no maturity benefit payable if the policyholder survives until the end of the term.

Is decreasing term insurance good for home loans in India?

Yes, decreasing term insurance is well-suited for home loans in India. The cover reduces in line with the outstanding loan amount, ensuring your family is protected from debt while keeping premiums more affordable than a level term plan.