How does decreasing term life insurance work?
Before taking out decreasing term life insurance, you’ll need to decide how long you want your policy to run – this is known as the policy term. These terms can vary between life insurers, so check what options are available. If the policy is being used to protect a mortgage or other type of loan, you might want the terms to be the same.
You must also decide the initial amount that you want the policy to cover. For mortgage protection, this will often be the outstanding mortgage amount, but you can ask for more cover or less. The amount that decreasing term insurance pays out falls as the policy term goes on until at the end of the term, there will be no payout at all.
The monthly premium payable for the cover is agreed at the outset. When you apply online through LifeSearch these premiums are fixed and won’t change for the duration of the term, unless you request changes to your cover.
A policy will only pay out if you die – or if you have a terminal illness benefit option included in your policy and are diagnosed as terminally ill with a life expectancy of usually less than 12 months – within the policy term. A life insurance policy might not pay out for a range of reasons including if you die because of a medical condition you’ve not disclosed to the insurer when arranging the policy, or due to drug or alcohol misuse.
If you are in financial difficulty and are considering missing a monthly payment, contact your life insurance provider to discuss your options. Insurers won’t generally pay out if you’ve missed any monthly premiums, though some may offer a grace period if you have a good reason for delaying your payment, but it's imperative you speak to them before you miss a payment.
If the policy term ends before you die, you have no further premiums to pay, but the policy won’t pay out a lump sum to your beneficiaries when you do pass away. You won’t receive anything for outliving the policy either.