Decreasing Sum Assured

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Definition:

Decreasing sum assured is a feature under the term plan in which the sum assured decreases every year by a percentage.

Description:

Decreasing the sum assured under the term insurance plan is a feature which is accepted by the insured to pay off their loan liabilities. The sum assured under the term plan indicates the amount of loan taken and the interest applicable. The premium under the decreasing sum assured term plan is lesser than the normal term plan. Decreasing sum assured term plans are used to pay off debts and loans. As the loan instalments are paid every year, the outstanding balance of loan reduces. This outstanding balance indicates a decreasing sum assured balance.

Example:

Amit purchased a term plan for 20 years with a decreasing sum assured Rs.20 lakhs. At the end of the policy year, the sum assured will decrease by 5%. At the end of the first policy year, the sum assured will be Rs.19 lakhs and so on. If after paying the premium for 6 years, Amit died, the reduced sum assured will be paid to the family dependents. It is because Amit had chosen a decreasing sum assured under the policy.