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Decreasing Life Insurance Advice

What if there was a life insurance policy that is specifically structured to pay off your family debts, such as mortgages and loans? This type of policy exists, and it’s called a decreasing life insurance policy. Read on to learn the details of decreasing life cover and how the Moneysprite life insurance advisers can help you find appropriate insurance deals.

What is decreasing term life insurance?

Decreasing term life insurance is a life insurance policy that pays out less the longer you live. If you die early in the early stages of the policy, beneficiaries will receive a larger lump sum than if you die towards the end of the agreed term.

This is different to increasing term life cover that pays out more as you get older as a way to keep up with rising inflation.

What are the advantages of a decreasing term policy?

The advantage of using decreasing term life cover is to ensure family members can pay off the household’s financial commitments, which are typically significant in the early stages of life and decrease as you get older. For example, you are likely to have larger mortgage and debt payments to make in your 40s and 50s, which is eventually paid off as you get older.

If you take out decreasing term life insurance, you structure the policy to cover your family’s bigger financial obligations in the early stages and the policy’s payout decreases in line with your family’s decreasing financial obligations.

What are the disadvantages?

There are some drawbacks to using any type of life insurance. The disadvantage of a decreasing term policy is that the payout decreases all the way to £0, meaning your beneficiaries may not receive any money at all. However, if they have been structured correctly, you should also leave beneficiaries with no outstanding debts.

Another disadvantage that won’t be applicable to everyone is that these policies are often capped at 6-8%. If the interest rate on your mortgage is above the capped rate, then the lump sum paid out may not completely clear your family’s mortgage.

Who might it not be appropriate for?

Some people are not suitable for a decreasing life insurance policy based on the way their financial obligations are organised. If you have an interest-only mortgage, opting for a decreasing term policy would be a bad idea.

An interest-only mortgage is a mortgage where only interest payments are made, and the principal amount is due at the end of the mortgage term. Interest-only mortgages place the largest financial obligation in later life, and therefore conflict with the way a decreasing term policy pays out less as you get older.

Things to consider

When looking for decreasing life insurance quotes, you need to consider many factors, not limited to:

  1. Debs and financial commitments you need to protect against
  2. How much you need
  3. How long you need the cover for

Is decreasing life insurance right for me?

Decreasing life insurance is an exceptional way to accurately safeguard your family from money problems when you die. However, not everyone is suitable for these policies and there may be a more advantageous type of life insurance available. The only way to know for sure is to complete extensive research or call on the help of an expert life insurance adviser.

Why use an adviser to help consider decreasing term life insurance?

A decreasing life insurance policy requires even more careful thought and planning than other types of insurance and generic life cover. For this reason, it is recommended that you employ the help of a professional adviser.

An adviser will assess your suitability for these policies – or recommend others if required. They’ll then look for the most suitable and beneficial policies based on your specific needs. Using an adviser will save on time and could stop you from making a mistake.

Reach out to one of our Moneysprite life insurance advisers to discuss your decreasing term life insurance options. We have advisers from Chelmsford to Norwich,  in Bognor Regis, London and the South East, and help clients across the UK. Our friendly and patient team are here to assist you.

Request a callback from one of our advisers

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