Is Decreasing Term Insurance Worth It?
Decreasing term insurance is a type of life insurance where the cover provided reduces annually for the duration of the policy. This type of policy is suitable for those who only want to cover a specific debt, usually a repayment mortgage. The premium for this policy remains the same for the duration of the policy, but the amount of cover reduces annually.
| Policy Type | Description |
|---|---|
| Decreasing Term Insurance | The cover provided reduces annually for the duration of the policy. This is suitable for those who only want to cover a specific debt, usually a repayment mortgage. |
| Level Term Insurance | The cover provided remains constant throughout the term of the policy. This is suitable for those who want to ensure their family can pay for day-to-day living costs and household bills. |
| Increasing Term Insurance | The cover provided increases over time to help protect the policy’s value against inflation. |
| Family Income Benefit | Pays out a monthly tax-free income to your family if you die within the term of the policy. |
| Whole of Life Cover | The policy is designed to run for the remainder of your life and guarantees a pay-out to your loved ones when you die. |
It’s essential to choose the right type of policy for your needs. If you’re not sure which type of cover is best for you, it’s worth speaking to an independent broker, such as LifeSearch, who can discuss your options with you and find you the most appropriate cover.
Decreasing term insurance is cheaper than level term insurance because the amount of cover reduces over time. However, the amount you’ll pay for your premiums will depend on factors such as your age, health, and lifestyle. It’s best to take out life insurance while you’re young to get the best rates.
When calculating how much life insurance you need, factor in how much your mortgage is currently worth, as well as how much interest you’re paying. Ensure that the amount of cover does not fall at a significantly faster rate than your outstanding mortgage debt.
If decreasing term life insurance isn’t right for you, you could consider other options such as level term insurance, increasing term insurance, family income benefit, or whole of life cover. Whole of life cover is usually purchased as part of estate and inheritance tax planning and is more expensive than term insurance as a claim is guaranteed.
In conclusion, if you have a repayment mortgage, decreasing term insurance is worth considering to ensure that your loved ones can pay off the mortgage if you die. If you have an interest-only mortgage or want to leave additional funds to cover other expenses, level term insurance may be more suitable.
