How Does A Decreasing Term Policy Work?
A Decreasing Term life insurance policy is a type of insurance that offers a payout amount that decreases over time. This policy is set for a fixed period and is generally a less expensive form of life insurance. The following are the things to consider when obtaining a Decreasing Term policy:
What is Decreasing Term Life Insurance?
Decreasing Term life insurance is a policy that pays out less as time goes on. If you pass away near the beginning of the term, your beneficiaries will receive more money than if you pass away nearer to the end. This insurance can provide peace of mind that your loved ones will have enough financial support to pay off outstanding debts.
What is Decreasing Term Cover Used For?
Decreasing Term insurance is typically taken out to cover a specific debt, usually a capital repayment mortgage. The amount of cover reduces in line with your outstanding mortgage liability. This means your loved ones will have enough to cover the amount left, should you pass away during the term of the policy. It is better suited to a repayment mortgage, not an interest-only mortgage.
Combining Decreasing Term Cover with Critical Illness Cover
Critical Illness cover can be incredibly beneficial in offering financial support if you were diagnosed with a critical illness. You can take out Critical Illness cover with Decreasing Term life insurance if you wish. You have a choice whether to take both as combined cover or as standalone policies. If you take out both policies as combined cover, you only pay one monthly premium. The cost of your premium will increase to reflect your increased cover. Combined cover usually only pays out once; so if you claim on the Critical Illness part of your policy, you will no longer be covered for life insurance. You can take out both policies separately, which means you will pay for two policies, but you will be covered for both circumstances.
Joint Cover
As this type of policy is usually designed to help pay off the mortgage, taking out a joint policy can be a better option. Joint policies can be cheaper than two single policies and mean that whoever passes away first will leave enough money to pay off the mortgage. The remaining partner can then take out their own life insurance policy according to their financial needs.
How Much Does it Cost?
The cost of Decreasing Term life insurance is usually dependent on how much is left on your mortgage. Your cover will be aligned with the length and amount left on your mortgage, and will decrease throughout the term. Decreasing Term cover is usually a cheaper option because the policy becomes less expensive to insurers over time.
| Type | Pros | Cons |
|---|---|---|
| Decreasing Term Cover | Cheaper option, payout amount decreases in line with mortgage liability | Only pays out once, policy becomes less valuable over time |
| Critical Illness Cover | Provides financial support if diagnosed with a critical illness | Can be expensive, may not be necessary if you already have medical coverage |
| Joint Cover | Cheaper option, ensures mortgage is paid off with a single policy | Only covers one mortgage, may not provide sufficient coverage for both partners |
When considering life insurance options, it is important to consult with an advisor from a reputable insurance provider to determine the best policy that meets your financial needs.
