Level term life insurance provides a fixed payout throughout the policy, ideal for family protection and income replacement. Decreasing term offers reducing payouts that match repayment mortgage balances - typically 30-50% cheaper. Both provide fixed premiums and terminal illness cover. Choose the right one for your needs or combine both for comprehensive protection.
How do you choose the right term policy to meet your needs?
Whether it's advisable to get level or decreasing term life insurance will depend on your personal needs and circumstances.
Both term life insurance options can be an affordable way of securing cover, but how do you know which is best for you?
The key difference between these two policy types is that a decreasing term life insurance payout reduces over the term of the policy, whereas level term life insurance pays out a fixed cash payment at any point during the term. As a result, decreasing term cover is usually more affordable.
As each policy can be well suited to protecting different aspects of your life, your reasons for securing cover can assist you decide on which policy is right for you.
The table below shows the similarities and differences between these two term policies:
Level Term vs Decreasing Term Comparison
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Level term or decreasing term life insurance - what's best?
When debating level term or decreasing term life insurance, one isn't necessarily better than the other.
As each policy is better suited to protecting different aspects of your life, it will depend on your unique circumstances and what you'd like to cover.
You can ask yourself the following questions to help establish which option is likely to be best to meet your needs:
How much life insurance do you need?
The amount of life insurance you need depends on your financial obligations and what you want to provide for your loved ones. A common rule of thumb is to have cover worth 10 times your annual salary, though your individual circumstances may require more or less.
Consider the following when calculating your life insurance needs:
Outstanding mortgage balance
Other debts and loans
Income replacement for your family (typically 5-10 years of salary)
Children's education costs
Funeral expenses (typically £4,000-£10,000)
Any specific financial goals for your dependents
For example, if you have a £200,000 mortgage, earn £40,000 per year, and want to provide 10 years of income replacement, you might need around £600,000 of cover (£200,000 + (£40,000 × 10)).
Use our free comparison tool to get personalised quotes from 50+ UK insurers, including Level Vs Decreasing Term, and find the right level of cover for your needs at the best available price.
What is the difference between level term and decreasing term life insurance?
Level term pays a fixed lump sum at any point during the policy term (e.g., £200,000 throughout), making it ideal for family protection, income replacement, and interest-only mortgages. Decreasing term pays a reducing amount over time (starts at £200,000, reduces annually), designed to match repayment mortgage balances. Decreasing term is typically 30-50% cheaper as the average payout is lower. Both have fixed premiums, same policy length (5-40 years), and include terminal illness cover. Example: Level term year 1 payout = £200,000, year 25 payout = £200,000. Decreasing term year 1 = £200,000, year 15 = £100,000, year 25 = £20,000.
Which is better - level term or decreasing term life insurance?
Neither is inherently better - it depends on your needs. Choose level term if you have a repayment mortgage AND want family income protection, have an interest-only mortgage, are protecting family income/living expenses, want flexibility, or can afford comprehensive cover. Choose decreasing term if you ONLY want to cover a repayment mortgage cheaply and are confident your family can manage without additional income replacement. Best approach for families: Combination policy - decreasing term for mortgage (£200,000 reducing, £12/month) PLUS level term for family protection (£150,000 fixed, £15/month) = £27/month total. This provides mortgage coverage plus fixed family income replacement - most cost-effective comprehensive solution.
Is decreasing term life insurance only for mortgages?
While decreasing term is most commonly used for repayment mortgages (90% of policies), it can cover any debt that reduces over time - business loans, car finance, personal loans on repayment schedules. However, it doesn't suit family income replacement (family needs same income whether you die in year 1 or year 20), lump sum inheritance, or interest-only mortgages (balance doesn't reduce). For non-mortgage debts, level term is often better despite higher cost, as it provides flexibility if you pay debt off early - decreasing term continues reducing on original schedule even if mortgage is paid off.
How much cheaper is decreasing term than level term life insurance?
Decreasing term is typically 30-50% cheaper than level term for the same initial coverage. Example: 30-year-old, non-smoker, 25-year term, £200,000 initial cover - Level term: £15/month (£4,500 over 25 years). Decreasing term: £10/month (£3,000 over 25 years). Saving: £5/month (33% cheaper) = £1,500 over policy lifetime. Insurance companies charge less because average payout is ~50% of initial sum assured (since it reduces). Longer policy terms = bigger % saving. While cheaper, may not be better value if your needs change (remortgage, more children, pay off mortgage early). Level term provides more flexibility for only 30-50% more cost.
What happens if I pay off my mortgage early with decreasing term insurance?
If you pay off your mortgage early, your decreasing term policy continues reducing on its original schedule - you remain covered but payout keeps decreasing. Your options: 1) Keep policy as reducing family protection (better than nothing, premiums cheap). 2) Cancel and buy new level term at current age/health (new medical underwriting - risky if health declined). 3) Convert to level term if policy has conversion option (no new medical questions, guaranteed acceptance). 4) Keep decreasing term AND add smaller level term top-up. Best approach: If mortgage paid off and still healthy, consider cancelling and buying level term matched to family needs. If health has declined, keep decreasing term.
Can I have both level term and decreasing term life insurance?
Yes, you can have both simultaneously - this is actually a smart, cost-effective strategy for comprehensive family protection. Example: Family with £250,000 mortgage and 2 young children. Option 1 - Level term only (£500,000): £50/month. Covers everything but expensive. Option 2 - Decreasing term (£250,000 mortgage) + Level term (£250,000 family): £15/month + £20/month = £35/month (saves £15/month = £180/year!). Option 3 - Decreasing term only (£250,000): £15/month (cheapest) but NO additional family income replacement. Verdict: Combination (Option 2) is best value - comprehensive protection at 30% lower cost. You die: mortgage paid off completely + family receives £250,000 for living expenses.
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