Understanding Decreasing Life Cover

Our expert advisers are fantastic at helping you understand the different aspects of the product you're signing up to but if you need a refresher this series of posts will help.

You will have had a conversation with your mortgage & protection adviser about Life Cover / Life Insurance, during the course of your mortgage process and it is likely that they will have discussed Decreasing Term Life Cover.

HOW IT WORKS

You choose a policy term (e.g., 25 years to match your mortgage) and the initial cover amount (e.g., your mortgage value). You pay fixed monthly premiums to a UK insurer, and if you pass away or are diagnosed with a terminal illness during the term, the policy pays out a lump sum based on the remaining cover at that time.

The payout can be used to settle your mortgage or other debts, with no income tax liability for your beneficiaries.

Costs vary based on age, health, lifestyle (e.g., smoking), and cover amount. For instance, a healthy 30-year-old might pay £10-£20 monthly for £150,000 of cover over 25 years. Starting early locks in lower premiums, as insurers view younger clients as lower risk.

THINGS TO KEEP IN MIND

• Repayment Mortgages Only: This cover suits repayment mortgages, not interest-only loans, as the latter don’t decrease over time.

  
  

• No Cash Value: If you outlive the term, there’s no payout or refund, but that’s why premiums are affordable.

  
  

• Exclusions Apply: Pre-existing conditions or specific causes of death may not be covered—check the policy.

  
  

• Joint Policies: For couples, a joint policy can cover both partners, but it typically pays out only once, so discuss options with us.

A PRACTICAL EXAMPLE

Picture a 35-year-old couple with a £180,000 mortgage over 20 years. They take out Decreasing Life Cover for £180,000, paying £15 monthly. Ten years later, one partner passes away, and the policy pays out £100,000—enough to clear the remaining mortgage. Their family stays in the home, free from financial worry. This is the kind of security we aim to help clients achieve every time.