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Decreasing term life insurance

With decreasing term life insurance, the payout amount your loved one would get if you were to pass away decreases over time.

Depending on what you have planned for the money, this might not sound ideal. But it makes decreasing term policies cheaper than level term ones, where the payout stays the same whenever a claim is made.

It also makes decreasing term policies ideal for covering a repyament mortgage, which decreases over time too. In fact, decreasing term policies are often referred to as mortgage life insurance policies for this reason.

Ready to compare prices? Select ‘get a quote’ now to find a great deal. Or read on for everything you need to know about decreasing term life insurance.

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How does decreasing term life insurance work?

Decreasing life insurance pays out less the further into the policy you get.

This means that if you pass away during the first few years of your cover term your beneficiaries would get more money than if you passed away in the last few years of your cover term. 

For this reason, decreasing term policies are usually taken out to cover a repayment mortgage, which also decreases over time. 

What does 'cover term' mean?

Your cover term is the amount of time your policy insures you for. This should be as long as the remaining time left on your mortgage.

What's a 'beneficiary?'

Your beneficiaries are the people who recieve your payout if you die. You'll be asked to name them when taking out a policy.

Getting the right decreasing term policy

If you’re taking out a decreasing term policy to cover a mortgage, you’d usually:

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Take out enough cover to pay off your mortgage in full. If you have a £200,000 mortgage, take out £200,000 of cover. 

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Choose a cover term that matches your mortgage term. If you have 25 years left on your mortgage, take out 25 years of cover.

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Compare quotes and pick a policy that suits your budget. We'll show you the best deals we can find for you.

What our life insurance expert says

"Decreasing term policies are perfect for covering a mortgage. But they may not be the best option for you. If you want to leave more behind when you die, level term policies can be worth looking at. Things like critical illness cover are worth thinking about too, and can really make sure your policy does everything you need it to."
Matthew Harwood, Home & lifestyle insurance expert at Confused.com
Home & lifestyle insurance expert Confused.com logo

Pros and cons of decreasing term policies


The benefits of decreasing term policies include:

  • They tend to be cheaper than other policies: This is due to the fact that your payout amount drops over time. With more expensive policies, like level term ones, your payout stays the same no matter how far into your cover term you die.
  • They ensure your mortgage is covered: This gives you peace of mind that your family can keep your home even if you pass away before your mortgage is paid off.
  • They can be taken out as joint policies: Joint life insurance policies can cover you and someone you have a mortgage with. This means that if either of you pass away, the mortgage is paid in full.

The downsides of decreaisng term policies incude:

  • The payout won’t cover anything else: If your payout amount is only enough to pay off your mortgage, this doesn’t leave anything spare to give to your benefactors. This means they may have to cover things like funeral costs out of their own pocket.
  • Your policy may not pay out at all: If you outlive your cover term, your policy won't pay out. This is obviously a good thing, but it does mean that the premiums you'd have paid into your policy would be lost. 
  • They aren’t good for interest only mortgages: As the payout amount drops over time, it may not be enough to cover the full cost of your mortgage as you get further into your policy.

When will my policy pay out?

Life insurance policies pay out if you die during the cover term.

According to the Association of British Insurers, 98% of all life insurance claims are accepted. So your policy should pay out in the majority of circumstances.

That said, there are a few situations where your policy may not pay out. These can differ slightly between insurers, but in most cases your policy won’t pay out if:

  • You die from suicide in the first 12 months of your policy: Suicide is typically covered after the first 12 months, but most policies will not accept a claim in the first year of a policy. This includes death as a result of serious self-injury. 
  • You fail to give accurate details: This could be something like failing to declare a health condition you knew you had before your policy began. If you then died as a resut of that condition, your policy may not pay out.

To see exactly what your policy covers you for, always check the policy documents your life insurance provider gives you. 

How much is decreasing term life insurance?

Average cost of a decreasing term policy*:

£19 a month

*Based on Confused.com data June - August 2023. Prices based on average quote offered on a 25-year decreasing term policy with £100,000 of cover.

The average cost of a decreasing term life insurance policy is £19 a month*. 

Exactly what you pay for your policy is based on a range of factors that are unique to you. This means that the price is different for everyone.

When calculating the cost of your life insurance policy, insurers will look at lifestyle factors like how much you drink, smoke and weigh, as well as what job you do.

They'll also look at more general factors that are largely out of your control like your family medical history and your age.

Generally though, the younger and healthier you are, the less you’ll pay.

*Based on Confused.com data June - August 2023. Prices based on average quote offered on a 25-year decreasing term policy with £100,000 of cover.

Can I add critical illness cover to my policy?

Yes, most insurers will allow you to add critical illness cover to your policy. This allows you to make a claim if you suffer a serious injury or illness.

If your claim is successful, the money you receive can be used to support yourself or your family if you’re unable to work. It could even be used to make alterations to your home if you find yourself with a disability. 

Each insurer has their own definition of a ‘serious illness or injury’ so always check your policy documents to see exactly what you’re covered for.

Adding critical illness cover to your policy will usually increase your monthly premium, so you should think carefully about whether or not it’s something you really need. 

What are the different types of life insurance?

Can I alter my policy if my circumstances change?

Yes, if you need to change your life insurance policy you should be able to do so.

If you’ve just had kids, moved into a new home or paid off your mortgage early, increasing or decreasing your cover amount can be a good idea. And most insurers should allow you to do so. 

To do this, contact your insurer to see what your options are. You may be able to change your cover level there and then.

Learn more about changing your policy

Will my benefactors have to pay tax on the money they get?

Mortgage life insurance

Whether your beneficiaries have to pay inheritance tax on your policy payout depends on a number of factors:

  • If the total value of your estate is less than £325,000, your inheritors won’t have to pay tax on anything you leave them.
  • If it’s above this threshold, they’ll pay 40% tax on everything above that limit.
  • If your payout is used to clear a mortgage, and the house your beneficiaries inherit is valued above £325,000, then your beneficiaries will pay tax.

There are exceptions to this, though. If you leave your estate to a spouse or civil partner, they won’t pay any tax.

The same goes if you leave your estate to a charity or community amateur sports club. 

You can also write your policy in trust. This allows you to name exactly who your policy goes to, and means the recipient won’t pay tax on it.

Can I get cover if I have a pre-existing condition?

Yes, in most cases you should be able to find cover if you have a pre-existing condition like diabetes, asthma or high blood pressure.

Most insurers will still cover you if you live with one of these conditions, but you may have to pay a bit more than average for your policy.

This is because insurers base their policy prices on risk, and having a known condition makes you appear ‘riskier’ to insure. The higher your risk, the higher your policy price.

It’s also worth bearing in mind that some conditions may not be covered at all. If you have a terminal illness, or an extremely serious condition, you’re unlikely to find cover.

Get a quote to see exactly which insurers are willing to cover you.

What happens if I pay off my mortgage before the policy ends?

If you pay off your mortgage early, you have two options:

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Keep your decreasing term policy going

Although your beneficiaries won’t need the money to pay off your mortgage, if you die during the remaining cover period, they’ll still receive a payout. This is likely to be small, especially if you're in the last few years of your cover period. But the money can then be used however they see fit.
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Cancel your decreasing term policy

Do this and you won’t have to pay any further premiums. But you'll also lose any protection your policy gives you. If you die, your insurance won’t pay out and your beneficiaries will not recieve a payout. You also won’t get back any premiums you’ve paid into your policy up to that point.

Need more help with decreasing term life insurance?

What happens if I stop paying my premiums

If you miss a payment, you’ll usually be given a grace period in which to pay. This is typically around 60 days.

After this period, your policy may be terminated. This would see your cover end, and would mean that any premiums you’d already paid into your policy would be lost. You wouldn’t get them back as a refund.

The only situation in which you’re likely to get any kind of refund is if you pay for your policy annually, and terminate your cover part way through the year. You may then get a pro-rata refund for the remaining months you hadn’t yet been covered for.

Does my policy's payout have to be used to cover a mortgage?

No, your payout can be used however your beneficiaries see fit. If paying off the mortgage you leave behind isn’t a priority for them, the money could be used to support them in your absence, to act as an inheritance or for something else entirely. 

Find out more with our life insurance guides

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