Decreasing term life insurance
Life cover that reduces in line with your repayment mortgage, designed to clear the balance if you die during the term. Usually costs less than level term cover for the same starting sum assured, because the sum assured reduces over the term.
Decreasing term life insurance is the standard partner to a repayment mortgage. The sum assured falls each year in line with a typical mortgage balance, so the policy pays out roughly what the mortgage owes at the time of claim. Premiums are level for the term, but because the insurer's exposure reduces over time, decreasing term costs less than level term over the same term and sum assured.
Who this is for
- You have a capital-and-interest (repayment) mortgage and want straightforward cover that clears it on death.
- You want to keep the premium down; family income or lump sum is being handled by another policy.
- You are a first-time buyer setting up cover for the first time and want to keep the budget tight.
- Your mortgage is a remortgage with no plans to extend or reduce the balance significantly.
How decreasing term cover works
You set the initial sum assured to match the mortgage balance and the term to match the mortgage term. The sum assured then reduces each year in line with an assumed interest rate (typically 6 to 8%, set by the insurer). Premiums are level. If you die during the term, the policy pays the remaining sum assured at that point.
Why it is cheaper than level term
The insurer's total exposure shrinks each year of the policy. By year ten of a 25-year policy the sum assured may have fallen to two-thirds of the original; by year twenty, to a quarter. The insurer prices accordingly, so decreasing term normally costs less than level term for the same starting sum and term. The size of the difference depends on your age, health, term and the insurer, and we quote both so you can see the actual figures.
When decreasing term is the right choice
For repayment mortgages where the only goal is "clear the mortgage if I die", decreasing term is almost always the right pick. It is mechanically aligned with the falling balance, simpler to explain, and lets you put the saved premium towards critical illness or income protection elsewhere.
When it is not
If the mortgage is interest-only, the balance does not fall, so the insurance should not either. Use level term instead. If you want a lump sum that survives clearance of the mortgage, for the family, for inheritance, for school fees, use level term or whole-of-life. We model the trade-off both ways for clients who are unsure.
Combined with critical illness
Most decreasing-term policies can be written combined with critical illness cover, with one premium and the first valid claim ending the policy. That structure works for households where the budget is tight; standalone critical illness on top of the life cover gives stronger protection but costs more. We model both.
Trust and beneficiaries
Like all life cover, write the policy in trust. Pay-out goes to the family directly, outside probate, outside IHT. Free to set up, ten minutes of paperwork, done alongside the application.
How Major Money Matters helps
Specific things we do for this product. No generic platitudes.
Match cover precisely to the mortgage
Initial sum assured set to the actual mortgage balance, term set to the mortgage term, decrease rate set to align with the actual amortisation schedule.
Decide between standalone and combined critical illness
We compare the price of decreasing term life only, decreasing combined life and critical illness, and standalone critical illness on top, in pounds and pay-out shape.
Quoting across a number of insurers
Based on an analysis of a number of insurers on price and underwriting. Price often decides it on decreasing term, but only after pre-assessing any medical history.
Trust at outset
Trust documentation completed alongside the application. Free, fast, keeps the pay-out outside probate and IHT.
Frequently asked questions
Will the cover always match my mortgage exactly?
Closely, but not always perfectly. The decrease rate is set when the policy starts and assumes a fixed interest rate. If your actual mortgage rate is materially higher than the assumed rate (typically 6 to 8%), your mortgage may decrease more slowly than the policy and you could end up slightly under-cover towards the end of the term.
Is decreasing term suitable for an interest-only mortgage?
No. The mortgage balance does not fall on an interest-only loan, so insurance that decreases would leave you under-cover. Use level term instead.
Can I add critical illness cover to a decreasing-term policy?
Yes. Most insurers offer combined decreasing-term life and critical illness cover at a single premium. Whether to combine or take it separately depends on price, household structure and pay-out preference. We model both.
How much does decreasing term cost?
As an illustration only, a 35-year-old non-smoker in good health might pay in the region of £8 to £15 a month for £200,000 of decreasing-term cover over 25 years. This is not a quotation. Costs scale with age, sum assured, smoker status and any medical loadings, and the premium you are offered depends on your own circumstances and medical underwriting.
What happens if I overpay or remortgage to a lower amount?
You can reduce the cover at any time. If the new mortgage balance is materially lower than the policy schedule, we recommend reviewing rather than just cancelling, sometimes a smaller new policy is cheaper than the existing one.
Should the policy be written in trust?
Yes, in almost every case. A pay-out in trust goes to the family within days, outside probate and outside the estate for IHT. Trust set-up is free at outset and we handle the paperwork.
Related
Other protection products that often pair with this one.
Level term life insurance
A fixed lump sum if you die during the term. Right for interest-only mortgages and family financial protection.
Read moreMortgage protection
The umbrella for cover that protects the mortgage: life, critical illness, income protection, or a mix. We size the package to your household.
Read moreCritical illness cover
A tax-free lump sum on diagnosis of a serious illness. Wording varies wildly between insurers; comparing price alone misses the point.
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