Level Term Vs. Decreasing Term Life Insurance
Whether you’re looking for life insurance for mortgage-related cover, to financially protect your loved ones or cover funeral expenses, there are different types of life insurance available to make sure you get the right cover for you.
The two main options when it comes to term life insurance are level term and decreasing term life cover, both of which can be a saving grace for your family should you pass away during the term of the policy.
This guide will help you get to know the key differences between the two, making sure that the cover you receive is the perfect protection for you and your family.
The truth is, this is a question that only you can answer. Life insurance, otherwise known as life cover or life assurance, is a way of protecting your family from any financial difficulties that may occur if you were to die during the length of your policy.
If you don’t own a home and are single with nobody relying on your income, or you believe that your partner’s earnings would be enough for your family to survive comfortably on, then you might not need a life insurance policy. If the latter is the case, however, your partner should have life cover in place if you rely solely on their earnings.
However if you have a mortgage, children, a partner or anybody else who relies on your income to get by, then life insurance is the best way to go about making sure that their loss of a loved one isn’t made worse by potential money worries.
Level term life insurance is arguably one of the simplest forms of life insurance, yet not always the cheapest. It is a life insurance policy which pays out a predetermined lump sum of money to your beneficiaries should you die within a set period of time.
How does level term life insurance work?
Level term life insurance requires fixed monthly payments to your insurer over a set amount of time, who in return will pay out a predetermined sum of money to your loved ones should you die before the term ends.
If you die outside of your chosen term, you will not be covered by your policy and your beneficiaries will not receive a payout.
The length of level term life insurance recommended to you will vary depending on your circumstances.
The main use of level term life insurance is to provide for your loved ones – or anybody who relies on your income – should you die. With this in mind, it is worth considering how long those you leave behind will be reliant on your income.
For example, if you have young children who are reliant on your income, you could apply for £250,000 worth of cover over a period of 20 years, which would likely last until they are able to live comfortably without the need of your income.
Also consider the costs of things such as childcare, utility bills and other everyday living expenses, all of which would all need to be covered by the money paid out from your life insurance policy.
NOTE: The longer your level term life insurance policy lasts for, the more expensive your monthly premiums will be.
Decreasing term life insurance – also referred to as mortgage protection insurance or mortgage decreasing term assurance – is a life insurance policy which is taken out over a set period of time, with the level of payout decreasing over the length of the policy.
Decreasing term life insurance is usually put in place to cover the repayment of a specific, significant debt like a mortgage, providing your loved ones with peace of mind should you die before it is repaid.
Monthly premiums for decreasing term life insurance are usually lower than those for level term life insurance, as the level of payout will decrease alongside the remaining balance on your mortgage.
Decreasing term life insurance is not recommended for those with an interest-only mortgage, as you are required to fulfil the full repayment of your mortgage at the end of its term.
NOTE: It is vital that you make sure that the length of your policy covers the entire duration of your mortgage and that the interest rate on your mortgage does not rise above the interest rate applied to your life insurance policy – this could lead to your loved ones having to make expensive additional payments in your absence.
Level term life insurance:
- Payout remains the same throughout the entirety of your policy.
- Monthly premiums remain the same throughout the entirety of your policy.
- Designed to provide loved ones with a cash sum to cover day-to-day costs.
Level term life insurance provides those you leave behind with a predetermined sum of money, which will help them to cover everyday costs such as childcare and utility bills.
Your predetermined sum of money will be paid in full to your loved ones, who may spend it however they see fit.
Decreasing term life insurance
- Payout decreases over time, roughly in line with your mortgage repayment.
- Monthly premiums decrease throughout the entirety of your policy.
- Designed to provide loved ones with peace of mind should you die before repaying a mortgage.
Decreasing term life insurance covers your family against outstanding repayments on a long-term loan, such as a mortgage.
The potential payout of your policy decreases over time, in line with the outstanding balance of your mortgage.
NOTE: There are circumstances in which ALL life insurance policies can refuse to payout. If your insurer believes that you have lied about your health or lifestyle – such as if you have said you do not smoke, but you do – then they have grounds to deem your policy void.
Always check the terms and conditions of your life insurance policy before committing to it.
If you’d like to see how much life insurance would cost you, get a free quote today on the best level and decreasing term life insurance below.