Difference between Level Premium and Decreasing Term Insurance

Life is uncertain and the best way to financially protect your family in your absence is through insurance. Traditional plans like money back, endowment, and whole life policies are expensive and you may not be able to afford a higher sum assured (SA).

A term plan is the simplest kind of life insurance policy. These policies offer higher coverage at an affordable premium. Regular term insurance plans do not provide maturity benefits at the end of the policy duration, which is why insurers charge a lower premium.

However, with varying customer needs, insurers now provide different types of term insurance plans in India. Two such forms of term plans include level premium and decreasing term insurance. 

Level premium term plans

When you choose this type of insurance, the SA periodically increases without any rise in the premium. When you are young and healthy, opting for a level-premium term plan is smart, as it allows you to enhance the coverage to suit your requirements at different life stages. 

It is an excellent way to ensure the financial stability of your family in case of an unfortunate event. However, when you buy term insurance with a level premium, the cost is higher than a normal term plan.

Decreasing term insurance plans

As clearly understood from its name, the SA under this term insurance plan reduces over a period. Often, you may choose to buy this type of insurance policy to cover liabilities, such as a home loan or personal loan. In case of an untoward event, this policy pays the benefits to your beneficiaries, which ensures that they do not have to face a financial burden in repaying the outstanding liabilities. 

Although this policy provides you with peace of mind and comes at a lower premium as compared to other term plans, the coverage reduces over a period. Therefore, in the case of an unfavorable circumstance, the reduced SA may be inadequate to meet the monetary requirements of your family at that point in time.

Which type of term insurance policy is more beneficial?

When you buy term insurance, understand your requirements clearly to make the right choice. Both level premium and decreasing term insurance policies have specific features and serve different objectives.

A decreasing term plan ensures your family does not have financial challenges in repaying any outstanding dues in case of a tragic event. Conversely, a level premium term insurance policy provides financial security to your family in your absence.

If your children are grown-up and would start earning in a few years, or if you have limited debt, like a home loan, a decreasing term plan may be a good option. In the case of an inauspicious circumstance, this plan will pay the pending financial obligations and cover other monetary needs of your family. 

If you have to meet life goals, like repaying the home loan and financing your children’s education and their wedding,  opting for a level premium plan may be more beneficial. This type of term plan provides increasing SA at the same premium. It ensures that your loved ones are financially independent when you are not around to look after them. 

Both these types of plans offer tax benefits, and you can choose either of these options based on their advantages and disadvantages and needs.

Having term insurance coverage in any form is crucial to ensure your family’s future financial wellbeing. Understand the term plan meaning and consider your financial situation, life stage, and requirements to make an informed buying decision.

If you still find it difficult to choose the best option, take assistance from a qualified and experienced insurance professional.

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