Decreasing Term Life Insurance
Written by Check Financial · 4 min read
The short answer
Decreasing term life insurance pays a lump sum if you die during the policy term, with the amount reducing over time, usually in line with a repayment mortgage. Because the cover falls, it usually costs less than level term.
Who It's For
Decreasing term is designed to pay off a debt that shrinks over time. It is often worth considering when:
- You have a repayment mortgage and want it cleared if you die.
- You're buying a home with a partner and want the other person to keep it.
- You have another loan that reduces over a fixed term.
How It Works
- You set the starting amount and term to match your mortgage, for example £250,000 over 25 years.
- The cover reduces over the term, roughly in line with a repayment mortgage at an interest rate the policy assumes.
- You choose single or joint cover. A joint policy covers two people and usually pays once, on the first death.
- If you die during the term, the insurer pays the amount of cover at that point. Most policies also pay early if you're diagnosed with a terminal illness, though often not in the final 12 to 18 months of the term.
If you outlive the policy, it ends and nothing is paid.
Check the assumed interest rate. If your mortgage rate is higher than the rate the policy assumes, your mortgage may reduce more slowly than your cover. That could leave a gap. We check this when we set up the policy.
How Much Cover, What It Costs and Tax
How much cover. Usually your outstanding mortgage balance and the remaining term. If your family would also need money for living costs, a separate level term or family income benefit policy can sit alongside it.
What it costs. The price depends mainly on your age, health and smoking status, the starting amount and the length of the policy. It also depends on whether the cover is single or joint, and whether critical illness cover is added. It usually costs less than level term for the same starting amount.
Tax. The payout isn't subject to income tax. Writing the policy in trust can mean the money is paid faster and kept outside your estate. We'll explain how this works when we set up the policy.
What It Doesn't Do
- It isn't suitable for an interest-only mortgage, where the full loan stays outstanding. That needs level term.
- It doesn't leave extra money for your family once the mortgage is cleared.
- It doesn't increase if you borrow more or extend your mortgage. Your cover needs reviewing when you remortgage or move.
- It doesn't pay anything if you outlive the term, and you can't cash it in.
- A joint policy pays only once.
Real Scenario
Details changed for confidentiality
In Remission, and Now Fully Covered
A client who had completed cancer treatment several years earlier assumed life insurance was no longer accessible to them.
Outcome: We identified specialist insurers who assess post-cancer applications in detail. Using a pre-application enquiry to protect the client's record, we secured a life insurance policy at a premium that reflected the time elapsed since treatment and the positive prognosis. The client now has full cover in place for their mortgage and family.
Read the case study →Common Questions
What happens if I move or remortgage?+
What if my mortgage rate goes up?+
Does my lender require it?+
Can I add critical illness cover?+
Decreasing or level term?+
Related Guides
Buying a Home? Mortgage Protection Explained
What you actually need, level vs decreasing term, and whether to add critical illness.
Read guide →Level Term Life Insurance
Level term life insurance pays a fixed lump sum if you die during the policy term. The amount stays the same throughout, so your family knows exactly what they would receive.
Read guide →Trusts
Writing a life insurance policy in trust means the payout goes to people you choose, through trustees, rather than into your estate. It can mean your family receives the money sooner, and it is usually kept outside your estate for inheritance tax.
Read guide →This guide is general information, not personal advice. Check Financial Ltd is an appointed representative of Capital Protect Ltd, authorised and regulated by the Financial Conduct Authority.