Key takeaway
Decreasing term life insurance has a death benefit that declines over the policy period while premiums stay level. It is most commonly sold as mortgage life insurance by banks. For most Canadians, level term insurance is a better value — you pay similar premiums but keep full coverage throughout the term.
How decreasing term life insurance works
With a decreasing term policy, you start with a chosen death benefit (e.g., $500,000) that reduces annually — typically matching a mortgage amortization schedule. By the end of the term, the death benefit may be close to zero. Premiums remain level throughout.
The most common form of decreasing term in Canada is mortgage life insurance (creditor insurance) sold by banks at mortgage closing. The bank is named as beneficiary, and the payout goes directly to pay off the remaining mortgage balance rather than to your family.
Decreasing term vs level term — cost comparison
Decreasing term premiums are 10–30% lower than level term for the same initial coverage amount. However, since the coverage declines while level term stays constant, the cost per dollar of average coverage over the term is actually higher for decreasing term.
Example: a 35-year-old paying $25/month for $500K decreasing term over 20 years receives an average of roughly $250K in coverage. The same person paying $35/month for $500K level term gets the full $500K throughout — significantly better value per premium dollar.
Why most Canadians should choose level term instead
Level term insurance keeps your full death benefit for the entire policy period. As your mortgage decreases, the excess coverage protects against other growing needs: children's education costs, inflation, lost retirement savings, and income replacement.
Level term is also portable (stays with you if you switch lenders), names your family as beneficiary (giving them choice on how to use funds), and is convertible to permanent insurance. Bank mortgage insurance lacks all three of these features.
Frequently asked questions
Is decreasing term insurance cheaper than level term?
Premiums are 10–30% lower, but since coverage declines annually, the cost per dollar of average coverage is actually higher. Level term provides better value for most people.
Should I get mortgage insurance from my bank?
Generally no. A standalone level term policy from an independent carrier is cheaper, provides level coverage, names your family as beneficiary, and is portable. Bank mortgage insurance is decreasing term with the bank as beneficiary.
Who should consider decreasing term insurance?
Decreasing term may make sense for someone who only wants to cover a specific declining debt (like a mortgage) and has no other coverage needs, or as a supplement to an existing level term policy specifically for debt protection.