What does a decreasing term policy primarily offer the policyholder?

A decreasing term policy primarily offers a death benefit that decreases over time. This type of insurance is structured specifically for situations where the insured wants to provide financial protection for a decreasing financial obligation, such as a mortgage or a business loan. As the outstanding balance of these obligations diminishes over the term of the policy, the death benefit is designed to align with that decrease.

For example, if a policyholder has a 20-year home mortgage, the decreasing term insurance would typically reduce its death benefit in accordance with the amortization schedule of the mortgage. If the policyholder passes away, the remaining amount of the mortgage would be covered by the insurance, ensuring that their beneficiaries are not left with the debt. This aligns with the purpose of the policy, which is to ensure adequate coverage that corresponds with declining financial responsibilities over time.

In contrast, a fixed death benefit does not change over the life of the policy, renewal options would pertain to policies that allow continuation but might not decrease, and benefits increasing with inflation relate to an entirely different type of coverage not characteristic of decreasing term policies.