What is decreasing term life insurance?
Decreasing term life insurance is a type of life insurance policy that’s paid over a fixed period of time. The level of pay-out decreases over the length of the policy. It’s often used to cover the balance of a repayment mortgage, because this is a type of loan that also decreases over time. Often, a mortgage lender will insist that life insurance must be in place before you start your agreement.
Frequently asked questions
What are the pros and cons of decreasing term insurance?
One benefit of a decreasing term life insurance policy is that monthly premiums are often lower than with other types of life cover. That’s because the amount of money an insurance provider needs to cover you for reduces over the course of a policy. As well as being popular with those who have a repayment mortgage, decreasing term life insurance could be a good option if you’ve recently started a family. If you have children, the amount of pay-out you’d need them to receive – if you or your partner were to die unexpectedly – might reduce as they grow up and become more self-sufficient.
On the other hand, decreasing term cover won’t work for you if you have an interest-only mortgage, because the money you originally borrowed (the capital debt) is only repaid at the end of the mortgage term.
Generally speaking, as time passes any claim on a decreasing life insurance policy will be worth less. So make sure you check the interest rate of any quote to make sure that cover would not fall at a significantly quicker rate than your outstanding mortgage debt.
What other types of cover should I think about?
If you’re working then it’s worth checking whether or not you have a death in service benefit in your employee’s contract. If you do, this benefit will pay out to your dependants if you pass away so try to find out how much you are covered for. Often, a death in service benefit is around four times the cost of your salary. This may not be enough to support your family. If that’s the case, you should probably still think about life insurance. Learn more about death in service.
You should also think about whether level term life insurance is more suited to your circumstances. A level term policy remains fixed throughout the course of a plan, guaranteeing a lump sum payment if you were to die during the length of your policy. Your dependants then have a pay-out that can be used for debts but also any other expenses, such as funeral costs, in the event of your death. However, you often pay more for this type of cover. Finally, another option to explore if you have a young family could be joint life insurance which insures two people.
Life insurance: making the right choice for you
A life insurance policy doesn’t have to be expensive – on average we found that people we helped could find a quote from £15.57 a month**.
**50% of customers could achieve a premium of £15.57 per month/year for their life insurance for a 10 year term, up to £100k worth of cover and no citricial illness cover. Based on Compare the Market data from November 2020.
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