The Key Difference
Level term: The payout amount stays the same throughout the policy term. If the sum assured is £250,000, it pays £250,000 whether you die in year 1 or year 24.
Decreasing term: The payout reduces over time, typically in line with a repayment mortgage balance. It pays the most in year 1 and progressively less in each subsequent year, reaching near zero at the end of the term.
Which Is Cheaper?
Decreasing term is almost always cheaper than level term for the same initial sum assured — typically 20–35% less. The reason is simple: the insurer’s maximum exposure reduces over time, so the risk profile is lower.
| Cover Amount | Term | Age | Level Term | Decreasing Term |
|---|---|---|---|---|
| £200,000 | 25 years | 30 | ~£12/month | ~£8/month |
| £250,000 | 25 years | 35 | ~£18/month | ~£12/month |
| £200,000 | 20 years | 40 | ~£22/month | ~£15/month |
When to Choose Level Term
- You have an interest-only mortgage (the balance never reduces, so the cover shouldn’t either)
- You want to replace your income for dependants, not just clear the mortgage
- You want to leave a financial legacy or inheritance beyond just clearing debts
- You have multiple financial obligations that won’t reduce over time
When to Choose Decreasing Term
- Your primary goal is mortgage protection on a repayment mortgage
- You want the most cost-effective cover for the specific risk of mortgage debt
- Your other financial needs are covered by other policies (e.g. income protection)
Can I Have Both?
Yes — and for many people with a mortgage and dependants, a combination of both is ideal. A decreasing term policy covers the mortgage; a level term policy protects your family’s income and living expenses. The policies are priced separately and often cost less combined than a single large level term policy.
Frequently Asked Questions
For pure mortgage protection on a repayment mortgage, yes. Decreasing term closely matches the actual risk and costs significantly less. If you also want to protect your family’s income, lifestyle, or leave a financial cushion beyond just clearing the debt, level term or a combination of both types is the better approach.
Yes — by design. The sum assured reduces progressively over the term, mirroring the reducing balance of a repayment mortgage. A payout in year 20 of a 25-year policy will reflect the approximate remaining mortgage balance at that point, rather than the original full mortgage amount.