What Is Decreasing Term Life Insurance?
Decreasing term life insurance is a policy where the payout amount reduces over time, typically over 20 to 35 years, broadly in line with a repayment mortgage balance. If you die during the policy term, your beneficiaries receive whatever the payout amount is at that point, not the original amount.
Because the insurer’s potential liability decreases each year, decreasing term cover is significantly cheaper than level term life insurance, where the payout stays the same throughout.
How Does It Work?
You choose a starting cover amount (usually matching your mortgage) and a term (matching your mortgage length). Your monthly premium is fixed for the entire term, but the potential payout decreases each year.
The reduction is usually calculated assuming a certain interest rate. If your actual mortgage rate is higher, the policy payout may drop faster than your mortgage balance. If your rate is lower, the policy may provide slightly more cover than needed.
How Much Does Decreasing Term Insurance Cost?
Decreasing term is typically 30–50% cheaper than level term for the same starting amount and term length:
| Age | Decreasing Term | Level Term | Cover / Term |
|---|---|---|---|
| 30 | £5–8/mo | £8–12/mo | £250,000 / 25 yrs |
| 35 | £7–11/mo | £11–17/mo | £250,000 / 25 yrs |
| 40 | £10–16/mo | £16–25/mo | £250,000 / 25 yrs |
| 45 | £16–28/mo | £26–42/mo | £250,000 / 20 yrs |
When to Choose Decreasing Term
- Repayment mortgage – The primary use case. Your mortgage balance reduces each month, so your life cover should too. Decreasing term is the most cost-effective way to ensure your mortgage gets paid off if you die.
- Budget is tight – If affordability is your main concern, decreasing term lets you get a high starting cover amount at a lower cost.
When NOT to Choose Decreasing Term
- Interest-only mortgage – Your mortgage balance stays the same, so you need level term cover, not decreasing.
- Family income replacement – If you want to replace your income for your family (not just clear the mortgage), level term or income protection is more appropriate.
- Inheritance tax planning – You need a fixed sum, so whole of life or level term is better.
Decreasing Term vs Level Term vs Family Income Benefit
| Feature | Decreasing Term | Level Term | Family Income Benefit |
|---|---|---|---|
| Payout | Lump sum (reduces) | Lump sum (fixed) | Monthly income |
| Cost | Cheapest | Mid-range | Often cheapest per £ of cover |
| Best for | Repayment mortgage | Fixed debts, legacy | Replacing income |
| Interest-only mortgage? | No | Yes | No |
How to Get Decreasing Term Cover
All major UK life insurers offer decreasing term policies, including Aviva, Legal & General, Royal London, Zurich, and Vitality. You can get quotes from multiple providers through a whole-of-market comparison to ensure you get the best price for your circumstances.
When applying, you will need to provide details about your mortgage amount, term length, health, smoking status, and occupation. Most applications are completed online in under 15 minutes.
Frequently Asked Questions
Decreasing term life insurance is a policy where the payout reduces over time, typically in line with a repayment mortgage. It is the cheapest form of life insurance because the insurer’s potential payout decreases each year.
Yes, if your primary goal is to protect a repayment mortgage. It is significantly cheaper than level term cover and ensures your mortgage would be paid off if you died. However, it should not be your only cover if your family depends on your income.
Decreasing term is typically 30–50% cheaper than level term for the same starting amount and term. The exact saving depends on your age, health, and policy length.
No. With an interest-only mortgage, your outstanding balance stays the same throughout the term. You need level term cover to match a fixed debt. Decreasing term is designed for repayment mortgages where the balance reduces over time.