What is decreasing term life insurance?

Planning for the future often means keeping your loved ones in mind. That’s what life insurance is for—to help protect your family and their financial goals if you die.

But not every type of coverage can meet your unique needs. If you need coverage that aligns with a specific debt—such as a mortgage or business loan—consider decreasing term life insurance, where your death benefit decreases over time.

Here’s how it works, the pros and cons, and when it may be the right fit for your financial goals.

Decreasing term life insurance is a type of term life insurance where the death benefit shrinks over time while your premium stays the same. These policies typically last between 10 and 30 years. You choose the term length and starting benefit amount, which then decreases along a set schedule.

The goal of decreasing term life insurance is to match financial obligations that decline over time, helping you avoid paying for unnecessary coverage as debts diminish. For example, you may want a $500,000 death benefit for 30 years to cover a new mortgage. After 25 years of payments, though, your mortgage is likely close to paid off, and you don't need $500,000 of coverage near the end of the term. 

With this type of life insurance, your coverage amount decreases over the term and leaves a benefit that's right-sized for helping to cover your loved ones' financial needs. It differs from level term life insurance, where coverage is consistent for the duration of the contract.

Here’s how a decreasing term life insurance contract works: Pick a term length, often 10, 15, 20 or 30 years. Then, select your initial death benefit and lock in your premium, which stays level for the entire term.

Your death benefit decreases on a predetermined schedule, usually monthly or annually. The reduction is typically a fixed percentage or dollar amount of the original face value. Once set, the decreasing schedule generally can’t be changed without altering the contract.

As with other life insurance policies, your named beneficiary gets a death benefit if you die, but the amount they get will be what's in effect at the time of your passing. At the end of the term, the coverage expires with no remaining value. You would have to apply for a different life insurance contract if you want coverage to continue.

Let's say you want to be sure your 6-year-old child's future education expenses are covered if something happens to you. You could buy $200,000 of life insurance for a 20-year term that decreases by 5% of the original coverage per year. In the early years, the full payout can cover a long stretch of time, from daycare to secondary school. By year 10 (when your child is 16), the coverage decreases to $100,000, which would still help cover college tuition. By year 20 (when your child is 26), the coverage expires, and the death benefit is minimal or none. But by then, you anticipate your child will have started their career and be on the way to their own financial independence.

Decreasing term life insurance can be a smart choice for debts or obligations that decrease over time—such as mortgages, student loans or business financing.

Here are some situations where decreasing insurance may be useful:

You can align your decreasing term coverage with your mortgage balance. As you make monthly mortgage payments and the loan balance decreases, your life insurance decreases as well. 

This helps ensure that if you die during the mortgage term, as long as your life insurance contract is in effect, your beneficiaries will receive enough to pay off the remaining balance. It’s a way to help them stay in your home while avoiding paying for excess coverage you may not need.

Beyond mortgages, decreasing term life insurance can help protect against other loans that shrink over time. Large car loans, personal loans or student debts with balances that are paid down regularly also can be covered by decreasing term policies.

Business owners can use this coverage to help ensure business loans get paid off if something happens to them, which can prevent debt from becoming a burden to partners or family members. Coverage decreases as the business pays down obligations.

Decreasing term life insurance can provide protection for almost any financial obligation that naturally declines over time. It’s a way to align coverage with a temporary responsibility, such as supporting children until they're independent or taking care of an aging parent. It also could make sense if you're supporting a spouse through a career transition and expect their income will eventually rise or if you need security until a financial interest fully vests, such as equity or a pension. 

Decreasing term life insurance has trade-offs: It’s affordable, but coverage declines over time, which may not provide the best value for long-term family protection or income replacement.

Here’s a rundown of the key benefits and drawbacks to consider:

• Typically offers lower premiums than level term life insurance
• Monthly premiums remain fixed for the entire term
• Coverage can match decreasing financial obligations
• Provides maximum coverage when your financial responsibilities are highest
• Simplified structure can make it easier to review and understand

• You pay the same premium throughout the term while coverage decreases
• Once purchased, the schedule is fixed and can’t be adjusted
• May not work well for general protection or income replacement
• Declining schedule may not perfectly align with your actual debt balance
• Beneficiaries receive significantly less money if you pass away later in the term

Decreasing term life insurance typically works when you have a specific, declining debt you want to protect. It may not be the right fit if you're looking for broader protection or to use life insurance to build wealth for your family.

Decreasing term life insurance is a niche product designed for targeted financial needs, such as mortgage payoff or short-term debt protection. While it can be cost-effective for needs like mortgage protection, many people benefit from other life insurance options that serve as ongoing income replacement.

When comparing level term vs. decreasing term coverage, keep in mind that level term life insurance provides affordable coverage during the entire term, which can make it more versatile for family protection. Permanent life insurance offers lifetime coverage and builds cash value, supporting long-term goals like estate planning, wealth transfer and financial security for your family.

You can plan on changing your life insurance coverage if you’re interested in decreasing term now, but want to explore the possibilities of permanent protection. Term contracts sometimes offer life insurance conversion options to permanent coverage. That flexibility can be valuable if your financial situation changes.

Decreasing term life insurance is best for aligning coverage with debts that decline over time—such as mortgages, business loans or education costs—while keeping premiums affordable. It offers affordable, targeted protection during the years when your financial obligations are highest, with premiums that stay level throughout the term. However, it’s a specialized product that works best for specific situations, not a one-size-fits-all solution for broader protection or income replacement.

If you’re considering life insurance coverage, connect with a local Thrivent financial advisor. They can help you explore different life insurance options and find the life insurance that’s right for your needs.