Decreasing term life insurance is usually used to cover the balance of an outstanding debt that is going down over time, such as a mortgage or other loan.
With so many life insurance products available, it’s hard to know which one is right for you without speaking to an industry expert.
That’s where we want to help. This article simply breaks down the meaning of decreasing term life insurance, what it covers and it’s pros and cons so you can decide whether or not it’s the right policy for you.
Decreasing term life insurance is like Level Term Life Insurance. You pay a monthly or annual premium and your cover lasts for a set period. With decreasing cover, however, the amount that the policy could pay-out decreases each year, eventually falling to zero by the end of the term.
Because of the way this cover works, it's often taken out by those who are looking to cover a specific debt and protect their family and loved ones.
What can Decreasing Term Life Insurance cover?
Decreasing term life insurance is usually used to cover the balance of an outstanding debt that is going down over time, such as a repayment mortgage. If you're paying off your mortgage and looking to protect it, then considering the level of cover you need and how long you need it for is important.
The outstanding mortgage balance, along with the term of your mortgage can be a good starting point when deciding on the cover that you need. This type of cover gives assurance that your loved ones can pay off the debt after you have passed away.
What are the benefits of a Decreasing Term Life Insurance policy?
To name a few of the benefits of decreasing term life insurance:
- It's affordable – Now here’s some good news… one good reason to get decreasing term life insurance is that premiums are often lower than the ordinary Level Term Insurance. That's because the sum of money an insurance provider covers you for decreases throughout a policy. It could be a good option if you're on a tight budget, but still want to protect your family from financial problems if you pass away.
- Personal asset protection – This type of policy could meet the demands of people who want to help protect a repayment mortgage or have a decreasing large debt balance. Another nugget of good news, is that some providers let you choose the interest rate that will be applied to your policy. This means that you can make sure your cover stays in line with your repayment commitments.
- Only pay for what you need – Decreasing life insurance could be a good option if you've recently started a family or you have children. Any policy pay-out that you may need them to receive, might reduce as they get older and become more financially self-sufficient.
What are the disadvantages of a Decreasing Term Life Insurance policy?
Whilst this policy type has its benefits, it also comes with what may be considered as disadvantages such as:
- Suitability – Decreasing Term Life Insurance won't fully protect your loved ones if you have an interest-only mortgage and were to pass away. This is because the money originally borrowed, is paid back at the end of the mortgage term and the debt does not decrease like a repayment mortgage.
- Decreasing value – As we have already mentioned, the level of cover that you're insured for reduces on this type of policy, however, the price that you pay each month stays the same until the end of your policy. This means that you'll still be paying the same premiums, but the cover amount will be worth less.
- No guaranteed pay-out – With this type of cover, there's a chance that you might outlive the end of the policy term. If this is the case, then you don't get any money back and your cover will end.
How much does Decreasing Term Life Insurance cost?
As with any life insurance policy, how much you pay for decreasing term life insurance will depend on your individual circumstances.
One of the biggest factors that will affect the cost of your decreasing term life insurance premium is likely to be how much cover you choose. Other things insurance providers may consider is down to a host of factors about you, including your age, smoking status and medical history. Normally, the higher the risk, the higher the premium.
How much Decreasing Term Life Insurance do I need?
The amount of decreasing term cover you require will depend on your individual needs and what you're looking to protect against. For example, if you are protecting a repayment mortgage when deciding how much cover you need you may want to consider the amount of outstanding mortgage and how many years are left to pay.
So what next?
If you know which is the right policy for you and you wish to get your free online quote, then all you have to do is **click here **to get started.
However, like we said at the start of this article, with so many types of life insurance policies, it’s hard to know which one is right for you. That is why it’s so important that you consider talking to an expert and finding out about which policy type suits your needs. We can help with that to. Simply go through the online form and there will be an option to get in touch to discuss your options.