Is It Better To Get Level Term Or Decreasing Life Insurance?
When it comes to choosing life insurance, one of the biggest decisions you’ll need to make is whether to opt for level term or decreasing cover. Here’s a breakdown of the differences between the two:
| Level Term Life Insurance | Decreasing Life Insurance |
|---|---|
| Pays out a fixed lump sum to your dependents if you die within the term of the policy | Reduces in line with an outstanding debt, usually a capital & interest repayment mortgage |
| Can be used to pay for day-to-day living costs and household bills | Usually best-suited to those who only want to cover a specific debt |
| Costs more than decreasing term insurance | Cheaper than a policy where the amount of cover remains constant throughout the term |
If you have a repayment mortgage, decreasing term insurance may be a good option for you, as the cover provided reduces in line with your outstanding debt. However, if you have an interest-only mortgage or want to ensure your family can cover day-to-day living costs and household bills, level term life insurance may be more suitable.
It’s important to choose a policy that lasts at least as long as the time you have left on your mortgage or other outstanding debt. When calculating how much life insurance you need, you should factor in the value of your mortgage and the amount of interest you’re paying to ensure your cover doesn’t fall at a significantly faster rate than your outstanding debt.
Other options to consider include increasing term life insurance, family income benefit, and whole of life cover. Speaking to an independent broker can help you find the most appropriate cover for your needs.
Remember, the older you are when you take out life insurance, the more expensive it will be. It’s worth taking out cover while you’re young to benefit from lower premiums and ensure your loved ones are protected should the worst happen.
