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Decreasing Term Life Insurance: Everything you need to know

If you’re in the process of taking out a new life insurance policy, you’ve likely come across decreasing term life insurance as one of your options. The question is – what is it? And what are the benefits of decreasing term life insurance? We’ve put together a helpful guide below to help you decide whether it’s the right product for you.

What is decreasing term life insurance?

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A decreasing term life insurance policy comes under the umbrella of term life insurance policies. Your insurance provider offers life coverage for a predetermined period agreed on between you and the company.

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In a decreasing term policy, the total payout from your life insurance is reduced over time. So if you’re covered for £120,000 over a period of 25 years, that figure will reach £0 by the time you finish your policy. However, the best part is that your monthly premium also drops during your policy term to match the reducing payout sum.

What are the benefits of decreasing term life insurance?

You might be wondering – why would I want my payout to drop over time? Well, there are plenty of benefits to decreasing term policies that meet various needs. The most common reason why people take out a decreasing term policy is to cover a repayment mortgage.

If you know your mortgage period and that you’ll be paying it off over time, a decreasing policy can match your mortgage repayments and ensure that your beneficiaries are protected should you pass away in that period. Since the amount you need covered drops over time, a decreasing policy will ensure that you only pay for the coverage you need. Instead of a level term policy, where the monthly premium doesn’t change.

Who is decreasing term life insurance for?

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As mentioned before, you’ve probably considered a decreasing term life insurance policy if you have a mortgage. It’s an excellent option if you’re a new property owner and you’d like to ensure that your family can stay in the same home and continue to make mortgage payments if you pass away.

The policy can also be used to cover other types of debt that will decrease over time and to cover your family’s living costs. If you’re the primary or sole income earner, will your family be able to continue with the same standards of living? Most customers set the term of their decreasing life insurance policy to the period in which their children are still likely to be financially dependable on their parents.

How much does decreasing term life insurance cost?

The total cost of your life insurance policy will depend on numerous factors and variables. Your insurance company will ask for your age, occupation, health, medical history, and smoking status. It also depends on the coverage amount you need. We’ve put together an example quote below to give you a better idea of the costs involved.

  • A non-smoking 40-year old applicant looking to cover a £150,000 mortgage over 25 years will start paying approximately £9 per month. This premium will then drop over time, as will the payout total.

Note that this estimate doesn’t consider other variables that might affect your quote, such as health condition and occupation.

Level term vs decreasing term life insurance

The other type of life insurance that comes under the term life umbrella is level term life insurance. Like a decreasing term policy, level term offers coverage over a predetermined period agreed on between you and the insurance provider. However, the payout total stays the same during the insurance period, as do the monthly premiums.

You should compare level term life insurance and decreasing term to better understand which one is best for you.

Can you get critical illness cover with decreasing term insurance?

Most insurance companies will offer you the option of adding critical illness cover to your policy for an extra monthly fee. This type of policy covers your loss of income should you be unable to work after falling critically ill. With the payments, you can continue to make your mortgage payments and cover other living costs.

Can you get terminal illness cover with decreasing term insurance?

Most insurance companies in the UK offer terminal illness cover as standard with decreasing term life insurance policies. This type of policy will allow you and your loved ones to make an early claim if you’re diagnosed with a terminal illness and given less than 12 months to live.

The early payment can be used to cover the remaining cost of your mortgage or other expenses, such as medical bills.

Can you get a joint decreasing term policy?

Many insurance companies in the UK offer joint decreasing term life insurance policies. This is a fantastic way to ensure that both you and your partner are protected. Opting for a joint policy can also save you from having to take out two separate policies. It’s always best to discuss with your insurance provider to determine whether this option is best for you.

Do you need life insurance to get a mortgage in the UK?

It’s not a legal requirement to have life insurance to get a mortgage in the UK. However, it’s essential that your family and loved ones are protected should something happen to you. Losing a relative is difficult; now imagine the stress of also dealing with potentially losing the family home in the process.

Getting a life insurance policy will provide financial protection and give you peace of mind that your home and family will be okay if you pass away prematurely.

Can you write decreasing term life insurance in trust?

Writing your decreasing life insurance policy in trust is a great way to avoid inheritance tax since it detaches your policy from your estate. In addition to this, writing your life insurance in trust can help your family receive the payout quicker and will also allow you to have more control over how the payout is managed.