A Decreasing Term Life Insurance policy is a type of Life Insurance which pays out a cash lump sum if the policyholder dies, at any point throughout the agreed term. The value of that cash sum decreases throughout the term of the policy; so if the policyholder were to die at the beginning of the policy, a bigger cash lump sum would be paid out than if the policyholder died towards the end of the agreed term. A Decreasing Term Life Insurance policy is most likely to protect a mortgage debt.
A Decreasing Term policy works well to protect a repayment mortgage or similar debt. As the term of the insurance can match that of the mortgage, and the value can reduce in line with the reducing amount of debt owed.
A decreasing term could also be a good option if you have just started a family. If you or your partner were to die unexpectedly the cash sum pay out would cover the costs of supporting your children. The older your children become, the closer they are to becoming self-sufficient and the less the lump sum needed to support them until adulthood.
If allowing your loved ones to continue to live in the house and not have to worry about paying off the mortgage is your main concern, this is definitely an option worth considering.
As an example - if you had a £250,000 mortgage with a 30 year term, you could take an insurance policy out, also worth £250,000 and with a 30 year term. Over the 30 year term, your mortgage debt would decrease from £250,000 to zero, once you had paid it off in 30 years. The policy’s benefit would decrease inline with your mortgage, also reaching £0 in 30 years. So if you were to die at any point during the 30 year period, the policy’s benefit would be sufficient to cover the payment of your mortgage.
Life Insurance offers the financial security and peace of mind, that should you pass away, those who rely on you financially would be financially secure. The benefit of a decreasing term Life Insurance over that of a level term policy is that the monthly premiums are normally less. Decreasing Term Life Insurance is generally the cheapest Life Insurance policy available, as the risk to the insurer decreases, the longer the policy runs.
It is possible with some policies to protect the policy against the effects of inflation, to ensure your payout sum won’t be worth less in real terms in the future, due to the rise in the cost of living. Your monthly payments would also rise along the same lines.
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