Decreasing life term insurance
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Written by:
Richard Johnson
Ascot Protection Expert
Last Updated:
29.10.2024
Written by:
Richard Johnson
Ascot Protection Expert
Last Updated:
29.10.2024
What Is Decreasing Term Life Insurance?
Decreasing term life insurance, also known as decreasing term assurance, is a type of life insurance where the payout reduces over time. It is typically used to cover debts that decrease over time, such as a repayment mortgage. The idea behind this policy is that as your debt or financial obligations reduce, the amount of cover you need also decreases. By the end of the policy term, the cover reaches zero.
This type of insurance is often referred to as decreasing mortgage cover because it is commonly used to ensure that your mortgage is paid off if you pass away before the loan is fully repaid. The payout decreases in line with the remaining mortgage balance.
How Does Decreasing Term Life Insurance Work?
With a decreasing term policy, the amount of cover reduces at a predetermined rate over the term of the policy. The premium you pay remains fixed throughout the term, but the payout becomes smaller as time passes. This type of cover is usually linked to a debt that also reduces over time, such as a mortgage, so the payout will be enough to cover the outstanding balance.
If you pass away during the term of the policy, the insurance will pay out an amount to your beneficiaries that is enough to cover the remaining mortgage or other financial commitments. By taking out decreasing life insurance to cover mortgage repayments, you can ensure that your family won’t be burdened with these debts if you’re no longer around.
What Are the Pros and Cons of Decreasing Term Life Insurance?
Pros
- Affordable premiums: Because the payout decreases over time, decreasing term life insurance is generally more affordable than level term policies.
- Tailored to debt repayment: Ideal for covering a mortgage or other debts that decrease over time.
- Fixed premiums: You pay the same amount throughout the term, so there are no surprises.
Cons
- Decreasing payout: The payout reduces over time, which means it may not provide as much protection later in the policy term.
- Not suitable for all financial needs: If you want a fixed amount of cover for your family’s future, a level term policy might be more appropriate.
What's the Difference Between Level Term and Decreasing Term Life Insurance?
The main difference between level term and decreasing term life insurance is how the payout changes over time.
- Level term life insurance: The payout remains the same throughout the policy term. This means your beneficiaries will receive a fixed amount of money no matter when you pass away during the policy period.
- Decreasing term life insurance: The payout reduces as time goes on, usually in line with the outstanding balance on a repayment mortgage or other decreasing debts. By the end of the policy term, the payout reaches zero.
Level term insurance is more suitable for people looking to provide their family with a lump sum that doesn’t decrease over time, while decreasing term assurance is best for covering debts like a mortgage.
Why Use Ascot Mortgages for Decreasing Term Life Insurance?
At Ascot Mortgages, we specialise in helping you find the best decreasing term life insurance tailored to your mortgage and financial needs. Our expert team will assist you in comparing quotes from leading providers to ensure you secure the most competitive and comprehensive cover. Whether you’re looking for decreasing term assurance to protect your mortgage or want peace of mind for your family’s financial future, we are here to help you make an informed decision and choose the right policy for your situation.
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FAQ
Yes, most people are eligible to apply for decreasing term life insurance. You’ll need to be in good health at the time of application, and some policies may require medical underwriting. Age limits typically apply, with most policies available to individuals aged 18–75.
While it’s not mandatory, taking out decreasing term life insurance is a common and practical way to protect your mortgage. Many people choose this type of cover because it ensures the mortgage will be paid off if they pass away during the repayment period, without leaving their family with a large financial burden.
Yes, many insurers offer the option to add critical illness cover to your decreasing term life insurance. This means that if you’re diagnosed with a serious illness, such as cancer, heart disease, or stroke, you can receive a lump sum payout. This can help you cover treatment costs or other expenses during a difficult time.
Yes, you can cancel your decreasing term policy at any time. However, once the policy is cancelled, you will no longer be covered, and if you decide to take out another policy in the future, the premiums may be higher due to your increased age or changes in your health.
No, there is no legal requirement to take out decreasing life insurance if you have a mortgage. However, it is often recommended as a way to ensure your mortgage is paid off in the event of your death. Many people find it a simple and cost-effective way to protect their family from inheriting debt.
Some insurers offer incentives like a free gift when you take out a new decreasing term life insurance policy. Whether or not you’re eligible depends on the terms and conditions of the policy and the specific promotions being offered at the time of your application.
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