Decreasing Term Life Insurance – How it Works
What is Decreasing Protection Life Insurance?
Decreasing Term life insurance or Mortgage Protection is a policy that is generally cheaper than Level Term Life Insurance, and whose policy reduces or decreases over time in keeping with your reducing mortgage over the term of the policy. The payout decreasing over time is what allows your premiums to be considerably lower than if you had a Level Term policy but it will only be of value to cover a mortgage where you pay down the premium, rather than just interest-only mortgages, since they aren’t paid down over time..
If you last the full term of the Mortgage Protection policy and wish to stay covered you’ll need a separate life insurance policy to carry on that cover. Keeping in mind that a new policy requires the assessment of your health and lifestyle factors at that point.
Should I choose a Mortgage Protection Life Insurance Policy?
While there are disadvantages to a Level Term policy in that there is less of a payout should you die within the agreed term, a Mortgage Protection policy simply only provides cover for your mortgage if you pass away before it’s paid off and thus covers the mortgage. There are advantages too. Though your loved one doesn’t get a lump sum payout on top of the value of the mortgage, they at least won’t have the headache of trying to pay off a remaining mortgage without you.
The advantage comes in that Mortgage Protection Life Insurance policies are generally cheaper than Level Term policies and thus are best suited to those who mainly want to cover existing mortgages without the extra costs of premiums for Level Term insurance. Usually banks or building societies that provide mortgages would expect you to have a form of life insurance in place before the mortgage starts as part of the agreement. This is where people would usually get a Decreasing Term Life Insurance policy since they satisfy the requirement, protect you, and are cheaper than Level Term.
The benefits of Mortgage Protection cover
In a nutshell, the premiums are cheaper than Level Term insurance. Because your mortgage declines over time, as do your mortgage insurance premiums. It’s a cheaper option than taking out Level Term Life Insurance to satisfy loan criteria set by banks and financial institutions as part of your mortgage application requirements. Your premiums also won’t increase over time.
Plenty of people use mortgage protection life insurance even if they don’t have a mortgage, so that there is a level of financial aid for families if they pass away during the policy term – it pays out less than a Level Term, but it’s cheaper.
Things to Consider with a Decreasing Term policy
If you have an interest-only repayment mortgage then you should consider a Level Term policy instead. Since the value of payout goes down on a Decreasing Term policy over time, if you have an interest-only repayment mortgage the payout will potentially not be enough to repay the mortgage since you also have to repay the capital debt at the end of the mortgage term.
Not only that, but a Level Term policy will allow you to have an amount left over to give to your beneficiaries as a lump sum to help them out financially since you won’t be around to provide the income you were providing previously.
The other consideration is that Decreasing Term policies don’t cover you for life. So if you don’t want to be limited by a term period then could look into Whole of Life policies instead since they guarantee a payout when you pass away.
Decreasing Term policy can be bought by you as a single policy, or with a partner as a joint policy. Note however that in the case of a joint decreasing term policy if either of the two holders pass away then the other person will no longer be covered by the joint policy. So a lot of people prefer to get two single Level Term Life Insurance policies instead.
Decreasing Term protection plans do not have a cash-in value and cover ceases at the end of the agreed term, or if you do not maintain your premium payments.
Factors affecting the cost of a Decreasing Term policy
Health and lifestyle factors influence the monthly premiums that you would pay, and how much insurers would be willing to cover you for. We ask a series of questions to accurately determine these factors, and it is very important that you are truthful to ensure that the Life Insurance policy is quoted accurately, and so that you will be paid out. Height and weight, smoking history (have you smoked within the last 12 months?) and any family history of illness, or ongoing illnesses will all be risk considerations. Another key factor is also your occupation, riskier jobs drive up premiums, and conversely safer jobs lower those premiums. A construction worker is a bigger risk than a receptionist for example.
Would you like Decreasing Term Life Insurance?
We’re here to help with this. Use the quote comparison service on our site to find a Decreasing Term policy that is right for you. Then our diligent insurance brokers will give you a ring to discuss your options, and get you set up and covered same day (in most instances) to give you quick and easy peace of mind.
Alternatively, you can call us directly. We will provide you all the facts to any of the questions you have, go through the quotes with you, and get you the best insurance cover for your budget.