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Blog: June 21, 2021

Types of Life Insurance in the UK


Ensuring that your loved ones are protected and provided for when you die is a primary concern. Life insurance can provide you with that security and peace of mind. There are various types of life insurance and decreasing term life insurance is extremely popular.

What is Decreasing Life Insurance?

Ensuring that your loved ones are protected and provided for when you die is a primary concern. Life insurance can provide you with that security and peace of mind. There are various types of life insurance and decreasing term life insurance is extremely popular.

Decreasing term life insurance works on the basis that you pay set monthly payments for a fixed period. While your premiums remain the same, the amount of money that will be paid to your beneficiary if you die decreases, in the same way that the outstanding balance on your mortgage decreases. Therefore, decreasing life insurance is a great option for covering the balance of your mortgage after your death.

Decreasing Life Insurance UK

How do I know I’m getting the best decreasing term life insurance?

Finding the policy that is most suitable for your needs is very important. There are a few key factors to consider when you take out a policy:

  1. The length of the policy term.
  2. The monthly cost of your premiums.
  3. Additional benefits, such as terminal illness cover or accidental death benefit.
  4. Whether you can make changes or additions to your policy.
  5. Whether there is an option to take out critical illness cover.

It is crucial to be aware of exactly what you require from your life insurance policy and to know how much money your beneficiary would need to receive to cover the cost of your mortgage if you die during the term of the policy. Therefore, it is a good idea to discuss your needs with an experienced broker who can give you all the information you need.

What are the benefits of decreasing term life insurance?

This type of policy may command lower monthly premiums than other types of policy, such as level term life insurance. Therefore, it may be more affordable for more people. It can also protect any dependants if you die because it can cover the outstanding balance on your repayment mortgage. However, it may not be suitable for people with an interest-only mortgage.

Is taking out mortgage life insurance a good idea?

Mortgage life insurance is an alternative to decreasing term life insurance but the two are similar in many ways. The sum that will be paid out when you die decreases as time goes on. In the case of mortgage life insurance, the value of the payout correlates with the decreasing amount that you owe on your mortgage.

However, while decreasing life insurance is paid to your beneficiaries, mortgage life insurance is paid to your lender or mortgage provider to cover the remaining sum on your mortgage. Therefore, although it will pay off your mortgage, it will not cover any other debts that you may owe.

What are the other alternatives to decreasing life insurance?

One of the primary alternatives to decreasing life insurance is level term life insurance. In the case of level term life insurance, you take out a policy for a fixed period. For example, you may decide to take out a policy that lasts for 25 years and will pay out £200,000 in the event of your death.

With a level-term life insurance policy, if you die within this period and the claim is valid, your insurer will pay £200,000 to the beneficiary of the policy. Your beneficiary will receive £200,000 if you die after 5 years or after 20 years and this sum will not decrease or change over time. However, if you die after the 25-year term has ended, there is no payout.

FAQ’s

Am I eligible to apply for Decreasing Life Insurance?

While the guidelines vary slightly from one insurer to another, generally you need to be over the age of 18 and a UK resident to be eligible for decreasing term life insurance. Policies usually have a maximum age limit and minimum and maximum policy terms.

How does a decreasing life insurance policy work?

When you take out the policy it will initially be set at a certain sum, such as £100,000 for example. If you were to die within the first year of your policy, your beneficiaries would receive this full amount.

The amount that is paid out decreases every year by a specific amount, such as 5%. So, if you were to die in the second year, the payout would amount to £95,000 and it would be £90,000 in the third year and so on until the end of the term of the policy, after which time the policy ends and there is no payout.

Should I get decreasing life insurance?

Decreasing term life insurance works best for people who want to ensure that their mortgage repayments are fully covered after their death. It offers protection to your loved ones as the payout from the decreasing term of life insurance should cover any remaining balance on your mortgage. However, it is generally suited to people with a repayment mortgage as opposed to an interest-only mortgage as the amount of capital owed on an interest-only mortgage does not decrease over time.

What is the difference between level and decreasing life insurance?

With both these types of policy, your payments will remain the same for the entire period of your term. The difference is that the amount that is paid to your beneficiaries does not decrease over time with level term life insurance. If you die within the period of the fixed term and the claim is valid, then a set sum will be paid out. On the other hand, the sum that is paid out to your beneficiaries decreases by a set amount each year with a decreasing term policy.

Can I make any changes to my Decreasing Life Insurance?

You may be able to extend the length of your policy, increase/decrease the level of cover or add extras such as critical illness cover. In the case of joint policies, you might also be able to remove someone from the policy such as in the event of a divorce or separation.

At Arkwright Insurance Brokers, we have been providing customers with personal, efficient and affordable service since 2006. Based in Bolton, we understand the various needs you have when it comes to insurance policies and we can help to make the process simple and effective. Please share this article with your contacts and get in touch with us to find out more.