Which type of term insurance is designed to provide coverage for a decreasing debt, such as a mortgage?

Decreasing term insurance is specifically structured to correspond with the diminishing value of a debt, making it ideal for scenarios like a mortgage. As the borrower makes payments, the outstanding balance of the mortgage decreases, and so does the coverage amount of the insurance policy. This type of insurance protects lenders by ensuring that if the borrower passes away, there is still sufficient coverage available to pay off the remaining loan balance. The decreasing nature of the policy aligns with the borrower’s obligation, providing necessary financial security for beneficiaries while potentially allowing for lower premiums compared to other types of term insurance.

In contrast, level term insurance provides a fixed coverage amount throughout the policy term, regardless of any decrease in debt. Increasing term insurance typically features a coverage amount that rises over time, which does not serve the purpose of matching a declining debt. Convertible term insurance allows for the conversion of a term policy into a permanent policy, but it does not specifically address the need for coverage corresponding to a decreasing debt.