What happens to premiums in a decreasing premium policy?

In a decreasing premium policy, the premium payments decrease periodically over the term of the policy. This structure is often seen in certain types of insurance products that are designed to cover decreasing liabilities, such as a mortgage or a loan where the outstanding balance decreases over time. As the insured amount decreases, the premiums are adjusted downward to reflect the reduction in risk exposure to the insurer.

This feature is beneficial for policyholders, as it can make the cost of coverage more manageable over time, aligning the premium with the decreasing amount of coverage needed. Understanding this concept is essential when evaluating the financial implications of such policies and planning for future expenses.