What is decreasing term life insurance?

Decreasing term life insurance is a form of term life insurance where the payout amount reduces throughout the policy term.

Your sum assured will decrease throughout the policy term, typically by a fixed rate of 6-8% per year.

For this reason, it's the most popular choice to cover a repayment mortgage, as your cover amount and remaining mortgage balance both decrease at similar rates.

In fact, it's commonly referred to as 'mortgage life insurance' because it's specifically designed for this purpose.

Key benefits:

• Significantly cheaper than level term cover
• Perfectly matched to repayment mortgages
• Payout reduces as your mortgage reduces
• Fixed monthly premiums throughout the term
• Tax-free payout for beneficiaries

How does decreasing term life insurance work?

With a decreasing term life insurance policy, you'll be covered for a specified period (often up to 40 years).

1. Choose your initial cover amount: This should match your current mortgage balance (e.g., £200,000)
2. Select your term length: This should match your mortgage term (e.g., 25 years)
3. Pay fixed monthly premiums: Your premiums stay the same throughout the policy, even though the payout decreases
4. Cover reduces annually: The payout amount decreases by a fixed percentage each year (typically 6-8%)
5. Payout if needed: If you die during the term, your beneficiaries receive the current payout amount tax-free

Important: The further into your policy you die, the smaller the payout to your family members. By the end of the term, the payout reduces to £0 and the policy expires.

Decreasing vs level term life insurance

Decreasing vs Level Term Comparison

Feature	Decreasing Term	Level Term
Payout amount	Reduces annually	Stays the same
Monthly cost	Cheaper	More expensive
Best for	Repayment mortgages	Any protection need
Premium	Fixed monthly payments	Fixed monthly payments
End of term	Payout reaches £0	Full payout maintained

Both provide tax-free payouts and fixed premiums throughout the term.

When to choose decreasing term:

• You have a repayment mortgage (not interest-only)
• You want the cheapest mortgage protection
• Your mortgage balance decreases over time
• You only need to cover the mortgage debt

When to choose level term:

• You have an interest-only mortgage
• You need to cover more than just the mortgage
• You want to leave an inheritance
• You want consistent protection value

Read our detailed comparison: Level vs Decreasing Term Life Insurance

Who needs decreasing term life insurance?

Not suitable for:

- Interest-only mortgages (where the balance doesn't decrease)

- Those wanting to leave an inheritance

- Covering expenses beyond the mortgage