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Decreasing term life insurance

Kasey Cassells
Written by Kasey Cassells, Senior content editor

Edited by Ben Smithson, Content Editor, 22 October 2020

When buying life insurance there are many factors to consider before deciding on one policy. Read how decreasing term life insurance can help your family pay off your debts.
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Decreasing term life insurance, or simply, decreasing life insurance, is a type of policy that pays out upon your death. But how does it differ from other types of life insurance policies?

Read our guide to learn more about decreasing term life insurance and find out if it is the best option for you and your family.

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What is decreasing term life insurance?

Many life insurance policies aim to cover you in the event of your death. There are two main types of life insurance: whole of life and term life insurance.

Some policies are for the whole of life, often known as life assurance, and will pay out when you die, regardless of when that is. Meanwhile, most other policies will come with a time limit and will only cover you up to a specified point in your life. Unless you die during the policy's term, you will no longer receive a payout and you will not get a refund on your premiums once the term ends.

Level term life insurance is the best known of the term life insurance policy types and this guide will explain the key differences with decreasing life insurance.

Decreasing term life insurance is a type of term life insurance and, like any of these types of policies, is designed to give you peace of mind and financial security in the event of your death. Most people take out term life insurance policies for the duration of their financial commitments.

For example, if you have mortgage repayments or other debts that need to be paid off, and you have calculated that it will take you 15 years to completely pay off, then a life insurance policy with a term of 15 years can help your spouse or others in your life cope with the costs that still need to be paid after you die.

If you don't die, you will have lost some of your money through the premiums of taking out an insurance policy, so it's important to ask whether it's worth it. If your loved ones would not be able to cope financially after you die, then a life insurance policy might be something you really want to do.

Decreasing term life insurance works by lowering the costs of your premiums as you near the end of your term. So if you have a 15-year policy, the costs will get slightly cheaper as you get closer to the end of it.

However, this means that the amount the insurer is willing to pay out will also decrease. As you get nearer to the end of the policy, the amount of money available to pay out to you will get smaller.

This can work out as a cheaper way of getting life insurance, but circumstances can change and it's best to be prepared for events that could affect your income or ability to keep up with paying the insurance premiums.

Should I get decreasing term life insurance?

Taking out any life insurance policy depends on a variety of factors and circumstances in your life.

Some mortgage lenders, for example, will insist that you get life insurance in order to finalise buying a property, but picking the right option for you should still be carefully considered.

If you have a home you are still paying off the mortgage for, you may want to get decreasing life insurance to guarantee that your family can continue living in it. Many people would obviously want to avoid the prospect of the bank repossessing their home and life insurance might be the best security against that if you do not have the finances right now.

House insurance

With decreasing term life insurance you can align the length of your debt repayment plan with the length of the policy. The value of your cover will obviously get smaller as the years go by, but hopefully so to will your mortgage repayments as you get closer to finally clearing all of your debts.

But decreasing term life insurance is not the only type of term life insurance available. Read on to compare decreasing term life insurances.

Decreasing life insurance or level term life insurance?

Decreasing term life insurance is perhaps the cheaper option in comparison to level term life insurance, but as a result you get less cover.

As with all financial products, when comparing the best insurance policies for you, your own personal circumstances should be a deciding factor, rather than just looking at the cost.

Level term life insurance is one of the more common types of cover available, and as the name suggests, works by giving you the same level of cover throughout the term of the policy. For example, you will pay the same premium and receive the same payout whether you die after five years or 10 years into a 15-year policy term.

Decreasing term life insurance might be better for you if you are looking for a cheaper option and if you are covering debts that are going to shrink over time, like a mortgage.

Some people may still prefer to get the extra cover that comes with level term life insurance because, with time, it should be able to cover more than just the outstanding debt. The payout from a level term policy might be able to cover extras like funeral costs and clearing any other debts that might need to be paid after you die.

When you start comparing life insurance policies, it's worth looking at how much cover you will need, how much you would be willing to pay, and for how long. But also, you should look at ways to lower the costs like improving health or quitting smoking, as these are factors that insurers will take into consideration when assessing how much you should pay.

Your decreasing term life insurance premiums are likely to go down as you get nearer to the end of your debt repayments, but the rate they go down may be slower than you expect if your health deteriorates with age.

There are many other types of life insurance policies out there, so it's certainly worth learning more and shopping around before you settle on one.

Compare life insurance

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*The life insurance comparison service is provided by ActiveQuote Ltd who are authorised and regulated by the Financial Conduct Authority (501109). Registered Office; Global Reach, Dunleavy Drive, Cardiff, CF11 0SN. By using this system you are also agreeing to our Terms and Conditions and Privacy Policy Monthly price based on non-smoking 25-year-old with £100,000 cover for ten years, postcode CF11 0SN. Price accurate as of 26/10/16.

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