What Is Decreasing Term Life Insurance?
Decreasing term life insurance is a type of life insurance where the sum assured (the payout amount) reduces over the policy term, typically in line with the balance of a repayment mortgage. It is also known as mortgage protection insurance.
Because the cover reduces over time, decreasing term is cheaper than level term life insurance for the same initial sum assured. It is the most cost-effective option for those whose primary goal is mortgage protection.
How Does Decreasing Term Work?
When you take out a decreasing term policy, you set:
- The initial sum assured — typically your full mortgage balance or the original mortgage amount
- The policy term — matching your mortgage term
- The rate of decrease — usually set to broadly track a repayment mortgage at a fixed interest rate (commonly 5–8%)
If you die during the term, the insurer pays out the remaining sum assured at that point. The payout is designed to broadly cover the remaining mortgage balance, leaving your family debt-free.
Decreasing Term vs Level Term: Which Is Right for Me?
| Feature | Decreasing Term | Level Term |
|---|---|---|
| Payout amount | Reduces over time | Fixed throughout |
| Best for | Repayment mortgage protection | Income replacement, interest-only mortgages |
| Cost | Lower | Higher |
| Flexibility | Less flexible | More flexible |
| Surplus payout | Less likely | Likely (family protection beyond debt) |
For most people with a straightforward repayment mortgage and primary goal of mortgage protection, decreasing term is the right choice. For those who also want to protect their family’s income or leave a financial legacy, level term or a combination of both may be more appropriate.
How Much Does Decreasing Term Life Insurance Cost?
Decreasing term is typically 20–30% cheaper than equivalent level term cover. A 30-year-old non-smoker can typically arrange decreasing term cover for a £200,000 mortgage over 25 years for as little as £7–£10 per month.
Key factors affecting the cost include your age at application, your health and lifestyle, the initial sum assured, and the policy term. Comparing quotes from across the whole market consistently finds the lowest premium.
Can I Have Both Decreasing and Level Term Policies?
Yes — and for many people this is the most effective approach. A decreasing term policy covers the mortgage; a separate level term policy provides income replacement and family protection beyond the debt. Each policy is priced independently, and the combined cost is often lower than a single large level term policy.
Frequently Asked Questions
Yes, for most people with a repayment mortgage. It is the most cost-effective way to ensure your mortgage is paid off if you die. The low monthly cost relative to the financial protection provided makes decreasing term one of the best-value forms of insurance available in the UK.
If you repay your mortgage early, your decreasing term policy continues until its natural end date. You can cancel it, though most term policies have no surrender value. Some people choose to keep the policy in force as it still provides residual protection for beneficiaries even after the mortgage is cleared.
No. Decreasing term is designed for repayment mortgages where the outstanding balance reduces over time. For interest-only mortgages, where the capital balance remains constant throughout, level term life insurance is the more appropriate choice.