Family life insurance can secure the financial future of…
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 FCA regulated broker, such as Reassured, you can compare both level term and decreasing term quotes from 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 add on option||Critical illness cover add on option|
|Can be written in trust to avoid 40% inheritance tax||Can be written in trust to avoid 40% inheritance tax|
Read on to find out everything you need to know about level term vs decreasing 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:
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.
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:
Get in touch to compare decreasing term life insurance policies today.
If you or your partner were no longer around, could you:
Life insurance could help to answer all of these difficult questions. Providing your loved ones with much needed financial security.
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?
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.
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.
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.
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.
The table below shows a comparison between the monthly cost of a level term and decreasing term life insurance. This has been based on a non-smoker taking out £100,000 cover over 30 years.
|Age||Level term life insurance||Decreasing term life insurance|
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 following table displays the average monthly cost of two single life insurance policies, in comparison to a joint policy for term cover between £100,000 - £200,000.
|Age||Two single policies||A joint policies|
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.
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.
There’s also the option of adding a critical illness cover element to a decreasing or level term policy.
However, this additional protection is likely to 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.
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 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.
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.
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 do it for you.
Why not put our award-winning team to work today? Use our FCA regulated broker service to compare quotes at absolutely no cost to you.
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