Level Term Life Insurance or Decreasing Life Insurance?

When it comes to protecting your family and ensuring financial stability in the event of your untimely death, life insurance is an essential consideration. Among the various types of life insurance available, level term life insurance and decreasing life insurance are 2 common options in the UK.

One of the key questions many people ask is: "Is decreasing life insurance cheaper than level term life insurance?" It can be, but that's not all you need to consider. Let's delve into the details to help you make an informed decision on which option could be right for you.

Level term life insurance provides a fixed amount of coverage for a specified term, such as 10, 20, or 30 years. If you pass away within the term, the policy pays out the agreed sum assured to your beneficiaries. The payout amount, known as the sum assured, remains the same throughout the policy term. This type of insurance is versatile and can be used to cover various financial commitments, not just your mortgage.

• Coverage remains constant throughout the policy term
• You choose the term length, typically ranging from 10 - 30 years or more
• Premiums are typically fixed and do not change
• Offers a guaranteed lump sum payout
• The sum assured does not change over time, providing a consistent level of cover

• Predictable financial support: beneficiaries receive a predetermined sum, which can help cover expenses like mortgage repayments, education costs, or living expenses
• Flexibility: Suitable for a range of financial planning needs, such as ensuring a lump sum to cover large debts or providing a fixed inheritance
• Peace of mind: offers stability and predictability, making it easier to plan for the future of your family

• Mortgage repayments: especially beneficial for interest-only mortgages where the mortgage balance remains constant
• Family protection: ensuring that loved ones have financial support to maintain their standard of living
• Debt repayment: covering fixed debts that need to be paid off in the event of your death

Decreasing term life insurance, also known as mortgage life insurance, is designed specifically to pay off your mortgage in the event of your death.

As you make repayments on a mortgage, the outstanding balance decreases over time. Consequently, the coverage amount under a mortgage life insurance policy decreases in line with the reducing mortgage debt. This type of insurance is typically chosen by homeowners who want to ensure their mortgage is cleared after they die, relieving their family of this financial burden and making it easier for them to keep the property.

• Decreasing payout: the sum assured decreases over the term of the policy, typically matching the outstanding balance of a repayment mortgage
• Term length: the policy term is usually set to match the length of your mortgage or loan term
• Premiums: premiums stay the same are generally lower overall than level life insurance due to the reducing cover amount

• Cost-effective: lower premiums make this type of insurance more affordable while still providing necessary coverage
• Targeted protection: ideal for ensuring that your mortgage or loan is paid off, removing a significant financial burden from your beneficiaries
• Tailored to debt: specifically designed to cover decreasing financial obligations, making it a practical choice for mortgage protection

• Repayment mortgages: perfect for homeowners with repayment mortgages, as the cover decreases in line with the mortgage balance
• Debt repayment: ensuring that other decreasing debts, such as certain loans, are covered in the event of your death
• Budget-conscious individuals: those looking for an affordable way to secure their financial obligations without over-insuring

When deciding between level life insurance and decreasing life insurance, consider your financial situation, the type of mortgage or loans you have and your long term financial goals. Each type of insurance has its advantages, and the best choice depends on your specific needs and circumstances.

Factors to Consider

• Mortgage type: match the insurance type to your mortgage – e.g. level term for interest-only mortgages and decreasing for repayment mortgages
• Financial obligations: consider other debts and financial responsibilities that your insurance needs to cover
• Budget: evaluate your budget to determine how much you can afford to spend on premiums
• Future plans: think about your long-term financial goals and how your insurance needs might change over time

When comparing the cost of decreasing life insurance and level term life insurance, several factors come into play:

Coverage Amount

Decreasing life insurance usually starts with a higher coverage amount that decreases over time, potentially making the initial premiums lower compared to a level term policy with the same starting coverage.

Policy Term

The term of the policy affects the premium. For both types of insurance, longer terms generally mean higher premiums. However, since mortgage life insurance coverage decreases, it can result in lower overall costs over the term.

Health and Lifestyle

Your health, age and lifestyle will impact the premiums for both types of insurance. Healthier individuals generally receive lower premiums.

Purpose of Coverage

Decreasing life insurance is tailored to cover the decreasing mortgage debt, which might be sufficient for those solely focused on protecting their home. Level term life insurance, with its fixed payout, offers broader protection for other financial needs, not just the mortgage of the deceased.

In many cases, decreasing or mortgage life insurance can be cheaper than level term life insurance. This is because with decreasing life insurance the payout decreases over time, aligning with your mortgage balance, resulting in lower premiums overall. For homeowners whose primary concern is ensuring their mortgage is paid off, this can be a cost-effective solution.

Nonetheless, it's essential to consider your overall financial protection needs. While mortgage life insurance might be cheaper, level term life insurance offers broader coverage that remains constant, which might be more suitable if you have other financial obligations such as providing for your family’s living expenses, education costs, or other debts.

At John Charcol, we understand that choosing the right life insurance can be complex. Our experienced protection advisors are here to help you navigate the options and find the policy that best fits your needs. We work with a range of reputable insurers to offer you competitive rates and comprehensive coverage tailored to your specific circumstances.

Contact John Charcol Today

For expert advice on level life insurance and decreasing life Insurance, contact John Charcol on 0333 363 6507. Our protection team is ready to assist you in finding the best policy for your financial future and to help you make things easier for your loved ones.