Under a decreasing term insurance plan, your sum assured will keep on decreasing once every 5 years by a specific percentage. The sum assured will keep on reducing until it reaches a maximum of 50% of the original sum assured. In case you pass away
in the middle of the policy tenure, the insurer will pay the reduced sum assured to your nominee/family.
A decreasing term insurance policy can be age specific or it may be linked to the loans/liabilities you may have taken. Basically, as you grow old, your liabilities might decrease, and hence, the need for a higher sum assured might decrease as well. Hence, you may not require the original cover amount you purchased. A Decreasing Term Plan can also be a good fit for you if you have loans/liabilities which you expect to pay off in the near future. If you buy this plan specifically to cover a loan/liability, the sum assured under this plan will reduce as the loan/liability reduces. And in case you pass away while the policy is in force, the insurer will pay the claim amount to your family - which they can use to repay the loan/liability.
Example:
Let’s understand how decreasing term plans work with the help of Jannat’s example.
Jannat, 35, buys a decreasing term insurance plan for a sum assured of Rs. 1 Crore and a tenure of 35 years. As per the policy terms and conditions, the sum assured will keep decreasing at the rate of 10% every 5 years - until it reaches a maximum of 50% of the original base cover.
Let’s see how the sum assured will reduce under the decreasing term insurance plan taken by Jannat.
Year |
How Will The Sum Assured Decrease? |
Sum Assured Applicable |
Year 1 to Year 5 |
- |
1 Crore |
Year 6 to Year 10 |
1 Crore - 10% of 1 Crore |
90 Lakhs |
Year 11 to Year 15 |
90 Lakhs - 10% of 1 Crore |
80 Lakhs |
Year 16 to Year 20 |
80 Lakhs - 10% of 1 Crore |
70 Lakhs |
Year 21 to Year 25 |
70 Lakhs - 10% of 1 Crore |
60 Lakhs |
Year 26 to Year 60 |
60 Lakhs - 10% of 1 Crore |
50 Lakhs |
So, this is how the sum assured under the term insurance plan will keep on decreasing.
Suppose Jannat passes away in the middle of the policy term, the available sum assured in that year will be paid to her family. Meaning, if she passes away in, say, the 7th policy year, the insurer will pay Rs. 90 Lakhs to Jannat’s family.