In the context of life insurance, what is the primary risk of 'Decreasing Term' policies?

In the context of life insurance, 'Decreasing Term' policies are designed with coverage amounts that diminish over time, which is typically aligned with a decreasing financial obligation, such as a mortgage or other debts. The primary risk associated with these types of policies is indeed the risk of coverage being insufficient over time.

As the death benefit decreases, there may come a point when the remaining coverage falls short of the financial needs it was originally intended to address. For example, if someone relies on a decreasing term policy to protect their family financially during the mortgage period, but their family’s needs or other financial responsibilities grow over time, the policy may not provide adequate coverage when it is needed most, potentially leaving them vulnerable.

This characteristic is particularly critical to understand when considering the long-term implications of a decreasing term policy, as it can lead to unexpected financial burdens if the policy is in force for many years without adjustments based on the policyholder's changing circumstances.