Death benefits: While decreasing term life death benefits decrease over time, often aligning with the outstanding balance of a specific loan, while level term life death benefits remain constant throughout the policy term.
Purpose: Decreasing term life is primarily used to cover specific financial obligations that decrease over time, like a mortgage or loan. Level term life, on the other hand, offers broader financial protection and can be used for various purposes such as income replacement, debt coverage and education funding.
Premiums: Decreasing term life premiums remain constant throughout the policy term and are generally lower than those of level term life insurance. But level term life premiums are typically higher due to the constant death benefit and broader coverage.
Cash value: Decreasing term life generally does not accumulate cash value. And most level term life policies also do not accumulate cash value, though some variations like return of premium (ROP) policies offer a refund of paid premiums if the policyholder outlives the term.
Coverage duration: Decreasing term life typically matches the term of a specific loan, such as a mortgage. However, level term life is purchased for a specific term, like 10, 20, or 30 years, based on the policyholder’s needs.
Beneficiaries: If a decreasing term life policyholder dies during the term, beneficiaries receive a payout based on the remaining death benefit. But when level term life policyholders die during the term, beneficiaries get a payout based on the level death benefit.
Conversion option: Both some decreasing term life and level term life policies can offer a conversion option to switch to a different policy type without a medical exam.
Suitability: Decreasing term life can be suitable for individuals who want to cover specific decreasing financial obligations, like a mortgage. Level term life is suitable for broader coverage needs, such as income replacement, debt coverage, education funding, etc.