How Does Decreasing Term Life Work

Decreasing term life insurance is a type of policy that pays out less as time goes on, and typically covers a mortgage or other debt.

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The payout amount for this type of policy decreases over time. It is set for a fixed period of time and is generally a cheaper form of life insurance.

This section will cover:

·  What is Decreasing Term life insurance?

·  What is Decreasing Term cover used for?

·  Combining Decreasing Term cover with Critical Illness cover

·  Joint cover

·  How much does it cost?


What is Decreasing Term life insurance?

Decreasing Term life insurance is a type of policy that pays out less as time goes on. So, if you pass away near the beginning of the term, your loved ones will receive more money than if you pass away nearer to the end.

Decreasing Term insurance can provide peace of mind that your loved ones will have enough financial support to pay off outstanding debts.

What is Decreasing Term cover used for?

The policy is typically taken out to cover a specific debt; usually a capital repayment mortgage. The amount of cover reduces in line with your outstanding mortgage liability. This means your loved ones will have enough to cover the amount left, should you pass away during the term of the policy.

It is better suited to a repayment mortgage, not an interest-only mortgage. This is because a repayment mortgage is the type of loan that reduces over time.

Combining Decreasing Term cover with Critical Illness cover

Taking out more than one policy can offer you more protection against different circumstances. You can take out Critical Illness cover with Decreasing Term life insurance if you wish. You have a choice whether to take both as combined cover or as standalone policies.

Critical Illness cover can be incredibly beneficial in offering financial support if you were diagnosed with a critical illness. It can mean you and your family are able to pay off outstanding debts such as a mortgage.

Combined cover means you take both policies out at the same time, and you only pay one monthly premium. The cost of your premium will increase to reflect your increased cover. Combined cover usually only pays out once; so if you claim on the Critical Illness part of your policy, you will no longer be covered for life insurance.

You can take out both policies separately, which means you will pay for two policies but you will be covered for both circumstances.

Joint policies for Decreasing Term life cover

As this type of policy is usually designed to help pay off the mortgage, you may want to consider taking out a joint policy. This is because the mortgage will only ever need to be paid off once.

Joint policies can be cheaper than two single policies and means that whoever passes away first will leave behind enough money to pay off the mortgage. The remaining partner can then take out their own life insurance policy according to their financial needs.

How much does Decreasing Term cover cost?

The cost of Decreasing Term life insurance is usually dependent on how much is left on your mortgage. Your cover will be aligned with the length and amount left on your mortgage, and will decrease throughout the term. 

Decreasing Term cover is usually a cheaper option because the policy becomes less expensive to insurers over time.  

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This calculator is for informative purposes only and is not to be taken as financial advice, for accurate financial advice please consult with an advisor from Caspian Insurance.