Level term or decreasing term?

Term life insurance is the most common and affordable form of life insurance protection.

Typically, it comes as either level or decreasing term and is often used to help protect your mortgage if the worst were to happen.

But which is the best term policy option for you?

The truth is, it'll all depend on your specific needs and what you want to protect.

By using an award-winning broker, like Reassured, you can compare both level term and decreasing term quotes from some of the UK's best life insurance providers.

Level term Decreasing term
Policy will last for a specified period of time Policy will last for a specific period of time
Pay out issued if you pass away during the policy term Pay out issued if you pass away during the policy term
Pay out sum remains fixed throughout the lifetime of policy Pay out sum reduces over the policy term
Best suited to paying off an interest-only mortgage Best suited to paying off a repayment mortgage
More expensive than decreasing term Cheaper than level term, (as less risk posed to the insurer)
Usually comes with terminal illness cover Usually comes with terminal illness cover
Critical illness cover can be added for an additional cost Critical illness cover can be added for an additional cost
Can be written in trust to avoid / minimise 40% inheritance tax Can be written in trust to avoid / minimise 40% inheritance tax

Read on to find out everything you need to know about level term vs decreasing term life insurance…

What is level term life insurance?

Level term life insurance provides a fixed sum assured (pay out amount).

This means that no matter when you pass away, whether this is the start of the policy or the end, your loved ones will receive the same amount.

This pay out can be used to:

  • Pay off an interest-only mortgage (or other large debts)
  • Cover family living costs
  • Pay for your funeral
  • Provide an inheritance

You’ll pay a monthly life insurance premium and the cost will be determined by factors such as your age, health and smoking status.

However, if you outlive the term of your policy no pay out will be made and your cover will simply expire.

Contact us to compare multiple level term life insurance policies free of charge.

What is decreasing term life insurance?

As the name suggests, with decreasing term life insurance your sum assured will decrease over time.

A decreasing term life insurance policy is the most common and cost-effective way of covering a repayment mortgage as the amount of cover can reduce over time in line with your mortgage balance.

This means your beneficiaries would receive enough to pay off the mortgage, however, there may not be any money left over.

As with level term, you’ll pay a monthly premium which will be decided using personal factors such as:

  • Age
  • Health and wellbeing
  • Smoking status
  • Cover amount (or sum assured)
  • Cover length (or term)

Get in touch to compare decreasing term life insurance policies today.

Why life insurance?

If you or your partner were no longer around, could you:

  • Afford monthly mortgage repayments?
  • Cover on-going household bills (gas, electricity, water, council tax)?
  • Maintain your current standard of living?
  • Afford expensive childcare costs?
  • Put your children through university?

Life insurance could help to answer all of these difficult questions. Providing your loved ones with much needed financial security.

Level term vs decreasing term infographic desktop

How much life insurance do you need?

Enter your financial commitments below to understand how much level or decreasing term cover you require.


£121,687 is the estimated average outstanding mortgage per household in the UK.

Our property is generally the largest financial commitment any of us will make.

Your life insurance should cover this significant debt should you no longer be around.


According to Money Advice Service, full-time childcare in the UK now costs £242 a week.

The loss of a parent could result in the need for additional childcare whilst the surviving parent increases their hours to account for lost income.

Your life insurance cover should factor in this additional required outgoing.


The average level of debt (minus a mortgage) in the UK is £15,385.

Factoring in any outstanding debts in your name when arranging life insurance ensures this burden is not passed to loved ones.


You may wish to leave your loved ones an inheritance or lump sum gift upon your passing.

Factoring in the gift amount when arranging your cover will ensure the pay out amount will be sufficient to provide your loved ones with this selfless gesture.


According to SunLife, the average cost of a UK funeral is now £4,417, whilst the total cost of dying is £9,493.

This is a 130% increase over the past 16 years and shows no signs of slowing down.

A significant cost which should be factored into the amount of life insurance you secure.


If you are one of the 65% of the UK who are lucky enough to have savings, this could be used as protection if you were to pass away.

Any pay outs from existing life insurance policies and investments can also be used as financial protection for your loved ones if you were no longer around.

Factor this into your required cover amount.

£ -

Your total cover estimate

£ 0

Let us find your best quotes.

Protecting the family home

Let’s face it, for the vast majority of us, a mortgage is likely to be the single largest debt that we’ll incur in our lifetime.

Whether you're a first-time buyer or a couple approaching retirement and looking to downsize, protecting your home is vital so not to financially burden your loved ones.

But what is the best way of protecting your mortgage?

Level term or decreasing term life insurance is an ideal way of protecting your family home.

But which one to choose?

Repayment mortgage vs interest-only mortgage

If you’ve bought your home by taking out a repayment mortgage, either decreasing term or level term could meet your needs and cover the debt.

A pay out from a decreasing term life insurance policy could pay off the remaining mortgage balance.

A pay out from a level term life insurance policy could pay off the remaining mortgage balance and leave some spare to cover family living costs, pay for your funeral or be left as an inheritance.

However, if you’ve an interest-only mortgage, where the capital balance doesn’t decrease over time then decreasing term wouldn’t be suitable.

In this case, level term would be best suited as the cover amount remains fixed.

Do you have children or dependants?

Whether you have children and/or dependants is highly likely to impact the type of life insurance you take out.

If you don't have any dependants and only need your life insurance to cover the mortgage, then decreasing term cover may provide sufficient coverage.

However, if you're a parent and wish to leave an additional lump sum, as well as cover the mortgage, then level term may better suit your needs.

Remember, if you’ve a repayment mortgage and level term cover, the further into the policy you live and the more of your mortgage you pay off, the greater the leftover sum assured will be.

It’s completely possible to have more than one life insurance policy in place to protect different needs.

Depending on your available budget, you could have a decreasing term policy to pay off your mortgage and a level term policy to leave for your family to cover living costs.

The term length

When protecting the family home, it makes sense for your life insurance to align with your mortgage term.

This ensures your family home is always protected.

If your mortgage term was 30 years, then your life insurance policy should be at least 30 years too.

However, if you’ve other reasons for having life cover (such as meeting future living costs for children) you may want the cover to exceed your mortgage term until your children become financially independent.

The cost of your monthly premiums

As a general rule, level term premiums, which provide a greater level of protection, are approximately 20% dearer than decreasing term.

With decreasing term cover the financial risk to the insurer reduces over time, which helps keep monthly premiums lower, compared with level term.

However, it's important to remember there are many other factors which impact premium costs, such as your age, health, weight (BMI) and whether you smoke.

The below data compares the monthly cost of a £100,000 level term vs decreasing term policy over a 20-year period for a non-smoker in good health.

AgeDecreasing term life insuranceLevel term life insurance% Difference

Joint cover or 2 single policies?

If you form part of a couple, regardless of whether you decide on decreasing or level term cover, you’ve the choice of taking out a joint policy or 2 single policies.

Again, this is a very personal choice and will depend on your individual circumstances and budget.

The cost of a joint policy is generally around 25% cheaper than taking out 2 single policies.

However, a joint policy will only pay out once (usually after the first death).

Whereas, if you had 2 single policies you could benefit from 2 pay outs and effectively double the level of cover.

The table below shows the average monthly cost of two single life insurance policies vs a joint policy.

Quotes are based on non-smokers in good health for a level term policy with a term length of 20 years for £100,000 of cover.

AgeJoint policyTwo single policies% Saving

Do you have protection through your employer?

If you’ve some protection through your employer, like death in service, this is likely to influence the cover you take out.

For example, if you’ve 4x your annual salary paid out by your employer, then decreasing term cover may be sufficient.

Or it might be that you still require greater coverage than just covering the mortgage, however, employee benefit could impact the amount of level term cover you require.

Regardless of your individual circumstances, cover via your employer is a definite consideration you should factor into your sums.

It’s worth mentioning that it can be a good idea (and perfectly legal) to take out more than one policy to cover different aspects of your life.

It's also important to consider that if you change your employer, the death in service benefit will not move with you.

Terminal illness cover

Both level term and decreasing term policies arranged through Reassured come with terminal illness cover as standard.

This means if you’re diagnosed with a terminal illness and given less than 12 months to live, you can make an early claim on your policy.

The early pay out could be used to get your finances in order, pay for private medical treatment or make necessary adaptations to your home.

Critical illness cover

There’s also the option of adding a critical illness cover element to a decreasing or level term policy.

This would most likely cover you against conditions like a stroke, heart attack, Parkinson's disease, MS, Alzheimer’s disease and more.

However, this additional protection will increase the cost of your monthly premium.

Also, check which conditions are covered by your policy, as not all cover is the same.

Getting access to a pay out early and not having to worry about money could be a massive benefit to you and your family at a very difficult time.

Write your life insurance in trust (avoid / minimise 40% IHT)

Minimise 40% inheritance tax (above the £325,000 threshold) and speed up the pay out by writing your life insurance in trust.

You can do this with either decreasing term or level term cover.

Writing your policy in trust means your policy avoids forming part of your legal estate and you assign the rights of the policy over to a nominated trustee/s.

At Reassured we're able to offer a free trust service on the majority of the policies we arrange, helping you with the application process and answering any questions.

Is life insurance compulsory if you take out a mortgage?

Generally, no.

Mortgage life insurance, whether that be via decreasing or level term cover, although a very good idea is not usually compulsory.

However, some mortgage lenders may request that you have life cover in place before agreeing to release funds, ensuring their risk is protected.

DON’T automatically buy life insurance through your mortgage lender.

From our experience, many homeowners are encouraged to take out cover either through their lender or their lenders preferred insurer.

Normally you can secure a much better deal if you compare multiple quotes yourself or use a life insurance broker.

Even if you have taken out a policy and now think you could have secured a better deal elsewhere, you can always replace it and get a new one.

This could make you a significant saving in the long-term.

Contact Reassured today to find the most cost-effective way of protecting your mortgage.

Compare life insurance level and decreasing term quotes

There is no definitive right or wrong way to protect your family and your home.

It’s a case of finding the right cover to protect your specific needs, meet your available budget and match your circumstances.

The best way of securing the right policy at the best price is to shop around and compare multiple quotes.

You could do this yourself, or you could save yourself time and money by getting a broker to source these quotes for you.

Why not put our award-winning team to work today? Use our broker service to compare quotes at absolutely no cost to you.


[1] https://moneytothemasses.com/quick-savings/insurance-2/life-insurance/much-100000-life-insurance-cost

[2] https://www.moneysupermarket.com/life-insurance/single-vs-joint/

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