Should You Choose Level Term or Decreasing Term Life Insurance?

Taking out life insurance generally has one purpose; to offer financial support to your loved ones should the worst happen. However, with so many different types of cover available, it is important that you are choosing the right policy to suit your needs.

Two of the most well-known types of life insurance include level term and decreasing term, with many customers not knowing which is the right one for them. While both policies are designed to pay out a cash sum and provide that much-needed support, they can differ hugely in the cover itself.

With that in mind, we take a look at both types and help you to determine which one may be best suited to your circumstances. 

Choosing between life insurance cover 

Both level term and decreasing term life insurance are very straightforward, which often makes them popular choices when taking out a life insurance policy. Level term life insurance in particular is one of the simplest types of cover.

When taking out level term life insurance, you generally set a ‘term’ or a period of time that the cover will run for. If you pass away within that term, your family will receive the pay-out you decided on.

What is important to remember is that level term life insurance works on a fixed basis. This means the policies do not change their pay-out over time, and it does not make a difference at what point in the term you pass away; the pay-out will be the same.

Generally speaking, level term insurance has lower premiums because if you were to pass away after the term ends, there is no pay-out.

Level term life insurance can be used for a multitude of purposes, including general living expenses to help your loved ones with everyday costs. It may also be used to replace lost income, pay for bills, future school fees for children. Unfortunately, it is also often used to pay for funeral costs.

How does decreasing term life insurance differ?

Decreasing term life insurance is also sometimes called mortgage life insurance, and this is where the two types of cover can differ hugely. Decreasing life insurance means the cover will reduce over the course of the term.

It is usually bought to help clear a debt, and for this reason it can be used to pay off a repayment mortgage. Please note this type of cover is not suitable for an interest-only mortgage.

Decreasing term life insurance is a common consideration when you buy a house. The insurance cover will decrease over time in line with your mortgage; as you continue repaying your mortgage, the amount of cover will reduce.

This type of life insurance is also popular for new families with young children. Your children may need a bigger pay-out from your life insurance when they are younger, but as they get older and potentially more self-sufficient, the amount of money they need may reduce.

The life insurance cover you take out can depend heavily on your circumstances, as well as the best way to help your loved ones financially. At Caspian Insurance, we can offer specialist support and guidance to help you make the right decision when it comes to life insurance.