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14 Apr 2024
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Decreasing Term Life Insurance Explained

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Decreasing Life Insurance Basics

Decreasing term life insurance covers you for a set term and pays out a lump sum if you die during the policy term.

The amount of cover decreases over the term of the policy and is usually designed to tie in with the outstanding amount on your repayment mortgage.

As the life cover reduces the monthly premium remains constant over the term of the policy.

With some policies you can add on additional options, like critical illness cover. If you do add on critical illness cover, the plan will pay out either on diagnosis of a qualifying critical illness or if you die during the period of the policy.

What are the Pros and Cons of Decreasing Term Insurance?

Pros

  • it pays a cash sum to your family or dependents to pay off a mortgage or loan after you have died,
  • it is cheaper than a level term life insurance.

Cons

  • The policy only pays out if you die or are diagnosed with a qualifying critical illness, if you add on critical illness cover during the term of the plan.
  • If you survive beyond the end of the plan the policy has no maturity value.

What is Decreasing Term Insurance?

A decreasing life insurance pays a lump sum in the event of life(s) assureds death. This lump sum decreases by a fixed amount during the period of the term, decreasing to nil by the end of the insured period.

This form of cover is usually used for mortgages or other loans where the amount owed decreases each year.

There is no investment element with decreasing term life insurance. This means that if no claim has been made there is no maturity value payable at the end of the term.

How are the Premiums Calculated for a Decreasing Term Insurance?

The premium you pay will depend on the sum to be insured, the period of insurance cover, your age, health, lifestyle and whether you are a smoker. A non smoker is usually defined as someone who has not smoked or uses nicotine products for at least twelve months.

Additional options can be added to increase the level of cover, although this in turn increases the premiums.

Additional options and areas for consideration include:

  • Critical Illness: a lump sum is paid in the event of diagnosis of qualifying critical illnesses. You can save money by combining term insurance with critical illness cover. However, depending on the policy type, this may provide a single payout should death follow a critical illness diagnosis, rather than two payout's if cover is obtained separately.
  • Terminal Illness: the lump sum is paid early on diagnosis of a terminal illness. This allows you to make arrangements for your dependents whilst you are still alive.
  • Waiver of Premium: if illness prevents you from working your monthly premiums are paid on your behalf for after a set deferment period. Check the quotes Key Facts documents for each quotation produced.
  • Guaranteed Premiums: guaranteed premiums ensure that the premiums remain the same throughout the duration of the policy term. Alternatively 'reviewable premiums' require the premiums to be reviewed periodically, typically every five years, meaning that premiums can increase following review.
  • Trusts: This can avoid delays in money going to dependents and can avoid the risk of having to pay inheritance tax.

The financial Conduct Authority does not regulate inheritance tax planning and trusts.

The terms and conditions of policies vary, so make sure you understand the scope of the cover being offered by reading the insurance companies Key facts document before taking out the policy.

Decreasing Term Life Insurance Plans are Available on

Single Life

  • Pays out on death of life assured

Joint life first death

  • Pays out once death of first  policy holder then stops ( normally taken for mortgage protection )

Joint Life Last survivor

  • Pays out once on death of the second policy holder ( normal taken for inheritance tax planning )

What to be Careful of When Buying Life Insurance Online?

When buy your life insurance it is always very important to complete health questions honestly. If failure to do so it may result in the insurer refusing to pay on the event of a claim. Medicals are some times required (paid for by the insure), and in some circumstances a GP report may be required before your policy is excepted.

Why Compare Decreasing Life Insurance Quotes With Go Direct?

With Go Direct our Decreasing life insurance quotes tool allows you to compare the leading insurance companies premiums. You can see instant quotes from providers such as LV, Scottish Widows, and Royal London.

What's more Go Direct guarantee that at the time of application you will not get cheaper like for like cover as we rebate 50% of the initial commission the provider pays us back into your decreasing term life insurance policy.

Instant Quote

Do you Want Advice on Decreasing Term Insurance?

After looking through the decreasing term life insurance information if you would like mortgage protection advice, complete our life insurance inquiry form and we will contact you to discuses your decreasing term life insurance and protection needs. Or for more information on your Mortgage Protection options please see our mortgage protection insurance guide.

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