Decreasing Life Insurance
What is a Decreasing Term Life Insurance Policy
Decreasing term life insurance is a policy where the amount of life cover you have (the sum assured) goes down over the term of the policy. It is designed to cover a capital & repayment mortgage. As the amount you owe on your mortgage goes down, so does the cover to match.
It will pay a lump-sum to clear the mortgage should you die within the term of the policy.
Things to Know About Decreasing Term Life Insurance
Most insurers will attach an 8% interest rate to your decreasing life insurance policy. This means that as long as your mortgage interest rate doesn't go above this, there will always be enough to pay off your mortgage. This interest rate can vary between providers, although some insurers will offer a ‘Mortgage Guarantee’ so you know your mortgage is covered, regardless of interest rates.
If you make changes to your mortgage, such as borrowing more or paying back extra, you will need to change your insurance as well, as it won’t change automatically.
Your monthly premium DOES NOT decrease, it will remain the same throughout.
Are There any Options on a Decreasing Life Insurance I can have?
- Terminal Illness cover is built-in with virtually every decreasing life insurance plan. What this means is that if you are diagnosed with 12 months or less to live, the policy will pay out before you die giving you time to put your affairs in order.
- Critical Illness insurance can be built-in with your decreasing life insurance policy so you will receive the benefit upon diagnosis of a qualifying illness or if you die, whichever happens first. Alternatively you can take this type of cover out separately if you prefer.
- Waiver of premiums can be added. What this means is that if you are off work due to illness or after an injury for more than 6 months, your premiums can be waived, although you still keep the policy, until you go back to work. Factors such as what you do for a living and your current state of health will decide whether there are any exclusions with this option.
- A decreasing term life insurance policy with ‘Guaranteed Premiums‘ means that the amount you pay every month is guaranteed to stay the same. Nearly all Life Insurance plans come with a guaranteed premium built in already. If you add Critical Illness, then you have a choice between guaranteed and reviewable, with guaranteed premiums generally being more expensive.
- If you choose decreasing term life insurance with ‘Reviewable Premiums’ the monthly premium is fixed, typically for the first 5 years only. At this point, it will then be reviewed by the insurance provider. They do this based on their claims history over that period and could increase, decrease or leave your premium the same. After the first review, some providers will fix the premium for another 5 years; others will review it every year thereafter.
Decreasing Term Life Insurance Advice
If you would like to find out more about decreasing term life insurance our professional advisors can advise you on all the different decreasing term life insurance options. Simply complete our life insurance advice form and advisor will call you to discuss you decreasing life insurance needs.
