What is the difference between level term and decreasing term insurance?

The distinction between level term and decreasing term insurance lies fundamentally in the structure of their death benefits. Level term insurance offers a fixed death benefit that remains unchanged throughout the entire duration of the policy. This means that no matter when a claim is made, the beneficiary will receive the same amount that was agreed upon when the policy was purchased, providing a sense of stability and predictability in terms of coverage.

On the other hand, decreasing term insurance is characterized by a death benefit that diminishes over time. Typically, this policy is designed to align with a decreasing financial obligation, such as a mortgage, where the amount owed decreases over time, and thus the insurance coverage reduces correspondingly. This can make decreasing term insurance a more economical choice for those looking to cover specific short-term debts or obligations, as the premiums are generally lower than those of level term insurance.

Understanding this key difference helps clarify the use cases for each type of insurance and underscores why a person might choose one over the other based on their specific needs and financial situation.