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Decreasing Term Life Insurance
A lot of people ask what a Decreasing Term Insurance policy is, how it works and why you would choose this type of policy.
A Decreasing Term policy does exactly as the title implies: the sum that you are insured for will decrease over the term of the policy.
This is a type of policy that is typically used to cover an amount outstanding on your mortgage or any other debt that you will pay off over time.
Many mortgage providers will require that you have life insurance in place before you are accepted for the loan, so that if the worst was to happen, the outstanding balance can be paid off.
Are there any other reasons to take out a Decreasing Term policy?
Another reason that you would take out a Decreasing Term policy is for a type of protection called a Gift Inter Vivos policy. This is a type of plan that will actually decrease at the same rate as the chargeable inheritance tax on your estate as a result of a Potentially Exempt Transfer.
The way this works is that if you were to pass on a gift (e.g. a house) and pass away within 7 years of this transaction, the receiver would have to pay inheritance tax on some of the gift. The Gift Inter Vivos Policy will cover the full level of inheritance tax that would need to be paid in year one and then decrease over the next 7 years protecting your gift.