Compare Decreasing Life Insurance

  • Decreasing life insurance can help make sure a repayment mortgage is paid off if you die during the policy term
  • A reducing payout means decreasing life insurance premiums tend to be lower compared with level term life insurance
  • Get a tailored quote and compare trusted decreasing term life insurance providers
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What our Nerds say about decreasing life insurance

Decreasing life insurance can help ease the financial pressures your family might feel should the worst happen to you during the policy term. In particular, decreasing term life assurance is often used to protect a repayment mortgage debt or other debt that you might have, but which should fall over time. You might see some life insurers refer to decreasing life insurance as mortgage protection life insurance as a result.

As the lump sum payment that decreasing life cover can provide will fall the further into the policy term you get, this type of policy is usually cheaper to arrange than a level term life insurance plan, where the pay out is always the same. The idea is that the amount of cover decreases broadly in line with the way your repayment mortgage debt or other debt should decrease.

A decreasing term life insurance policy will pay a lump sum to your loved ones if you were to die during the policy term. They will have the flexibility to use the money how they want, but if the policy is set up with covering the mortgage in mind, it will give you valuable peace of mind that your loved ones should be able to remain in their home should the worst happen.

Decreasing life insurance explained

Decreasing life insurance, also known as decreasing term assurance, typically offers a more affordable way of arranging life insurance that will pay a lump sum to your loved ones if you were to die during the term of the policy. This is because the payout gets smaller as the policy progresses, a feature that makes decreasing term life insurance an option for covering outstanding debt that also decreases over time.

This can be particularly useful for ensuring a repayment mortgage will be paid off if you die. For this reason, you’ll find that some decreasing term life insurance policies are referred to as mortgage protection life insurance.

What is decreasing life insurance?

Decreasing term life insurance is a type of life cover where the amount paid out to your beneficiaries if you die gradually reduces over the policy term. As a result, the lump sum payment would be smaller if you were to die towards the end of your policy than if you died soon after taking out a decreasing life insurance plan.

Because of how it works, decreasing term life insurance offers a way to cover financial obligations such as a repayment mortgage or personal loans, where the amount owed decreases over time. Some people might also use decreasing term insurance to provide their children with a more significant level of financial security while they are younger, which will gradually reduce as they grow older and hopefully become more financially independent.

Decreasing term assurance is sometimes also used in inheritance tax planning to cover tax charges that could become payable from gifts where the donor does not survive for a specified period of time after the gift is made.

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.

What is the difference between decreasing and level term life insurance?

Both types of life insurance are designed to pay a lump sum to your beneficiaries should you die during the policy term. However, whereas the payout amount remains the same for the duration of a level term life insurance policy, the payout from decreasing term insurance falls the further into the policy term you go.

This contributes to the other main difference between decreasing and level term insurance – the price. Because the amount an insurer needs to cover you for reduces, the premiums for decreasing term insurance are usually cheaper than the equivalent level term insurance.

» COMPARE: Level term life insurance quotes

Pros and cons of decreasing life insurance

A decreasing life insurance policy offers definite advantages, but can have some potential drawbacks that need to be considered too.

Benefits of decreasing term life insurance

  • Premiums tend to be lower than for level term life policies.
  • Cover can be aligned with the outstanding balance on a repayment mortgage to make sure it is paid off if you die during the policy term.
  • It provides financial protection for loved ones if you die during the policy term.

Drawbacks of decreasing term insurance

  • It is not suitable as cover for an interest-only mortgage, where the full capital amount borrowed is repayable at the end of the mortgage term.
  • As time passes, you’re paying for less and less cover.
  • There is no payout or cash value if you live beyond the policy term (as with most types of life insurance).
  • Your mortgage might not be completely paid off if there are changes to your mortgage situation which you haven’t covered by changing your cover amount or taking out additional insurance. It’s important to make sure you cover yourself for the correct amount both at outset of the policy and throughout your mortgage duration.

How much does decreasing life insurance cost?

The cost of decreasing life insurance will depend on a number of factors. The amount of cover you want, the length of the policy term and your age when taking out the policy will all be important. Generally, the more cover you need, the longer the term you’re looking for and the older you are when applying, the more you can expect to pay.

At the same time, insurers will consider your personal medical health and whether your family has a history of certain conditions before deciding on the premium they want you to pay. If you smoke or drink more than the recommended weekly limits for alcohol, you could be considered a greater risk, and the premium you’re offered might be higher too. The type of work you do can affect premiums as well.

When compared with level term life insurance, however, the cost of decreasing life insurance is typically lower, because the amount you’re covered for decreases over time.

» COMPARE: Decreasing life insurance quotes

How much cover do I need?

If you’re getting decreasing term insurance as protection for a repayment mortgage (or similar debt), you would normally look to cover the mortgage amount you have outstanding to try to make sure it is paid off. Then, as the amount you owe on your mortgage decreases, so the cover offered by your policy should similarly fall in line.

If you are considering decreasing term insurance for less than the full mortgage amount, or for any other reason, including to provide loved ones with a payout above simply covering the mortgage, this can often prove more difficult to work out.

Think carefully about how much income your family might have to live on if you were to die and whether your partner or spouse’s ability to work might be affected. And if you want decreasing term insurance to provide your children with some financial protection until they are of an age when you think they should be able to fend for themselves, remember that life doesn’t always go to plan.

Also take into consideration any other protection policies you might already have in place, as well as any death in service benefits from your work, and any readily accessible savings, investments and pensions you might have.

Looking at it from a different angle, you also need to work out how much you can comfortably afford to spend on monthly premiums. You can contact a LifeSearch adviser if you are unsure of the amount needed for your individual circumstances

How can I compare decreasing life insurance?

You’re able to get and compare decreasing term life insurance quotes tailored to your personal situation right here thanks to our partnership with LifeSearch. The quote process is made easy by breaking it down into simple bitesize steps.

And if you’re unsure of anything, you’ll find plenty of guidance along the way, readily available without losing your place in the journey as well as the option of speaking to a LifeSearch adviser by simply leaving a phone number during the quote process.

» COMPARE: Decreasing life insurance quotes

Decreasing Life Insurance FAQs

How much does decreasing life insurance decrease by?

The rate of decrease will be calculated by your life insurer so that the potential payout is zero by the time the policy term ends.

When used for mortgage protection, this means the cover will usually decrease broadly in line with how your outstanding mortgage balance is expected to reduce as you make your normal mortgage repayments.

Can I get decreasing life insurance cover with critical illness cover?

If an insurer offers the option, critical illness cover can be added to a decreasing life insurance policy at an extra cost. In return, this could provide you with a lump sum payout should you be diagnosed with a serious illness that is covered by the terms of the critical illness policy.

Illnesses covered by critical illness policies and their definitions can vary. The policies can also have different requirements on how long you must survive after diagnosis so it’s important to check the terms thoroughly.

» COMPARE: Critical Illness Cover and Life Insurance

What is the decreasing term life insurance cash value?

There is no cash value to a decreasing term life insurance policy. The only time it will pay out is if you die within the policy term.

Can I cancel my decreasing life insurance?

A decreasing term life insurance policy can be cancelled at any time, although you’ll then have no cover under that policy should you die. If you cancel, there may be an administration charge for doing so, but you won’t need to continue paying your monthly premiums. It’s unlikely that you will get a refund of your premiums if you decide to cancel your policy.

The exception is if you’ve only just opened your policy, and you are within the minimum 30-day cooling-off period insurers must allow for you to cancel the policy and receive a refund of premiums if you so wish. There may still be a deduction to cover the time a policy has been in force and an administration fee.

About the author

Tim draws on 20 years’ experience at Moneyfacts, Virgin Money and Future to pen articles that always put consumers’ interests first. He has particular expertise in mortgages, pensions and savings. Read more

This life insurance comparison and quote service is presented via our partnership with LifeSearch Limited. The information you provide is used to generate quotes from LifeSearch. Nerdwallet Ltd does not form part of the service beyond presenting quotes.

LifeSearch Limited is registered at Wentworth House 440 Parkway, Solent Business Park, Whitely, Hampshire PO15 7FJ and is an Appointed Representative of LifeSearch Partners Limited and regulated under the Financial Conduct Authority ref: 402349.

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