What Is the Difference Between Constant and Shrinking Life Insurance Benefits?

What is the difference between constand and shrinking benefits in life insurance? Which is better?

Constant-benefit life insurance pays out the same death benefit no matter at what point during the insurance term you die. For example, if you get term life insurance with a constant benefit of 500,000 Swiss francs and you die within the insurance term, your beneficiaries will receive 500,000 francs (minus possible taxes).

With diminishing-benefit life insurance, the insurance benefit changes at predetermined intervals (every year or every five years, for example). For example, a term life insurance policy with diminishing benefits may have an initial death benefit of 500,000 Swiss francs, with the benefit being reduced by 100,000 francs every five years until the end of the 25-year term. So if you died in the first five years of the insurance term, your beneficiaries would get 500,000 francs. But if you died in the second five year tranche, they would receive just 450,000. If you died in the last five-year tranche, they would receive just 50,000 francs.

Which insurance model is right for you?

Some risks shrink over time. For example, the cost of a mortgage goes down if you pay off the mortgage. The risk of your children not being cared for financially typically decreases as your children reach adulthood. If the risk you want to insure against will shrink over time, then using diminishing-benefit life insurance makes more financial sense. The reason is that the insurance premiums you have to pay go down along with the insurance coverage. Over the full insurance term, the cost is much lower than using constant-benefit life insurance.

On the other hand, if you want to insure a risk that will not decrease over time, then using constant-benefit life insurance lets you do that.

The interactive Swiss term life insurance comparison lets you compare offers for either constant-benefit or diminishing-benefit life insurance.

You can find more information in this guide:
Term life insurance: Constant benefit vs. decreasing benefit