Should I get level term or decreasing term life insurance?

Whether you should get level or decreasing term life insurance will depend on your personal needs and circumstances.

Both term life insurance options can be an affordable way of securing cover, but how do you know which is best for you?

As each policy can be well suited to protecting different aspects of your life, your reasons for securing cover can help you decide on which policy is right for you.

The table below shows the similarities and differences between these two term policies:

Level term life insuranceDecreasing term life insurance
Lasts for a specified period of time (up to 40 years)Lasts for a specified period of time (up to 40 years)
Fixed pay out sumPay out sum reduces over time
Can help protect an interest-only mortgageCan help protect a repayment mortgage
Usually more expensive than decreasing termOften the most affordable form of life insurance
Will only pay out if you pass away during the termWill only pay out if you pass away during the term
Sum assured up to £1,000,000Sum assured up to £1,000,000
Fixed premiumsFixed premiums
Terminal illness cover included at no extra costTerminal illness cover included at no extra cost
Critical illness cover can be added for an additional costCritical illness cover can be added for an additional cost
Can be written in trust to avoid/minimise inheritance taxCan be written in trust to avoid/minimise inheritance tax
Premiums starting from just 20p-a-day through Reassured † Premiums starting from just 20p-a-day through Reassured ¥


Why not use the FCA-regulated broker service offered by Reassured to compare quotes from some of the UK’s best life insurance providers?

A friendly member of the team will be happy to help you conduct a full level term vs decreasing term life insurance comparison, with quotes starting from just 20p-a-day.

Keep reading our complete level vs decreasing term comparison for everything you need to know…

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What is level term life insurance?

Level term life insurance will cover you for a specified period of time (the term) and offers a fixed sum assured (pay out amount).

This means that, no matter when you pass away during the term of your policy, your loved ones will receive the same amount.

You’ll pay a monthly life insurance premium and, if you pass away while your policy is active, a pay out will be made.

A pay out from level term life insurance can help to:

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

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

Due to the large fixed pay out potential, level term life insurance is often a good option for those with interest-based mortgages (as well as other large debts) and those with families who want to help protect on-going living costs.

Check out our dedicated level term life insurance page for more information »

What is decreasing term life insurance?

Decreasing term life insurance provides cover for a specified period of time. However, your sum assured will reduce throughout the policy term.

This means that your sum assured will reduce at a fixed rate throughout the lifetime of your policy (often at the same rate a repayment mortgage decreases).

For this reason, decreasing term life insurance is the most common and cost-effective way of helping to protect a repayment mortgage.

However, this isn’t to say decreasing term life insurance doesn’t have other uses.

A pay out from decreasing term life insurance can help to:

  • Pay off a repayment mortgage
  • Protect family living costs (for those with older children who will require less financial help)
  • Provide an inheritance
  • Cover funeral costs

As with level term life insurance you’ll need to pay a monthly life insurance premium to keep your cover valid.

A pay out will only be made to your loved ones if you pass away during the term of your policy.

We have a complete decreasing term life insurance page which may be of interest »

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What’s difference between level term and decreasing term life insurance?

The main difference between level term and decreasing term life insurance is that one provides a pay out that remains the same, while the other provides a pay out that changes through the policy term.

  • A pay out from a level term life insurance policy is fixed (meaning the pay out sum doesn’t change)
  • A pay out from a decreasing term life insurance policy reduces (usually at a rate of between 6% - 10%)

Below is an example of how each policy pays out…

Level term life insurance

Policy term: 25 years

Sum assured: £250,000

The amount paid out to your loved ones wouldn’t change, regardless of when you pass away during the term of the policy.

This means the amount paid out will always be £250,000.

Decreasing term life insurance

Policy term: 25 years

Sum assured: £250,000 (reducing at a rate of 8%)

The amount paid out will depend on when you pass away.

If you passed away 22 years into the policy, £50,000 could paid out[1] - reaching £0 at the end of the term.

The other key difference between the two policies is the price you’ll pay.

Decreasing term life insurance tends to be cheaper as your risk to the insurer reduces each year.

The table below shows the price difference a 35-year old would pay for level vs decreasing term life insurance:

AgeLevel term life insurance price a monthDecreasing term life insurance price a monthPrice difference %
35£5.75£4.78-17%


Speaking to an expert, like Reassured, can help you to establish which option is right for your unique needs.

We can provide you with all the information you need to make a fully informed decision. Simply get in touch.

Level term or decreasing term life insurance - what’s best?

When debating level term or decreasing term life insurance, one isn’t necessarily better than the other.

As each policy is better suited to protecting different aspects of your life, it will depend on your unique circumstances and what you’d like to cover.

You can ask yourself the following questions to help establish which option is likely to be best to meet your needs:

Do you have a home to protect

Do you have a home to protect?

A mortgage is the single largest debt we’ll incur in our lifetime. Whether you’re a first-time buyer or are looking to downsize, life insurance can be essential in helping to protect your home.

Those with interest-based mortgages will likely benefit from having level term life insurance, due to the large pay out potential.

Whereas those with repayment mortgages will be better suited to decreasing term life insurance as your sum assured can reduce at the same rate as your mortgage balance.

Do you have dependants

Do you have dependents?

Whether you have anyone who relies on you financially (such as young children), is highly likely to impact the type of life insurance you take out.

If you don’t have dependents, and are just looking to help cover your mortgage, decreasing term life insurance could be sufficient.

For those who have dependents and want to help protect current family living costs, as well as any future family living costs, level term life insurance may be better to provide them with a fixed pay out sum.

Do you have other large debts

Do you have other large debts?

If you have other large debts, as well as a mortgage, level term life insurance could help your loved ones to pay these off after your passing.

This can prevent them from having to use their own savings, sell belongings to make money or take money that was meant to for them out of your estate.

However, if you have other debts that will reduce as you make payments on them, decreasing term life insurance could help to cover these in the same way it can help to cover a repayment mortgage.

What is your budget

What is your budget?

While level term and decreasing term life insurance are both affordable options, decreasing term is often the cheaper option out of the two.

If you’re on a tight budget, decreasing term life insurance could be an affordable way for you to provide some cover for your loved ones without going over budget.

If it’s within your budget it can be possible to take out both level term and decreasing term life insurance simultaneously to cover multiple aspects of your life.

How much life insurance do you need?

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

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£137,934 is the estimated mortgage debt per household in the UK.

The purchase of a home is likely to be the largest financial commitment any of us will make in our lifetime. Your life insurance should cover your remaining mortgage balance to allow your loved ones to stay in the family home should anything happen to you.

Source: Moneynerd.co.uk
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The average monthly household budget in the UK is £2,548 (that’s £30,576 per year), which is spent on transport, food & drink, utilities (gas, electricity, water etc), clothing, council tax and leisure activities.

With energy prices hitting a record high and the cost of living rising sharply in the UK, you may wish to factor in utility bills and family living expenses into your cover.

Source: Nimblefins.co.uk
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The average personal debt of UK adults has risen to £34,566 (not including mortgage debt), with credit cards, personal loans and overdrafts being the most common forms of debt.

Factoring in any debts into your life insurance cover means that, if they need to be paid back from your estate after your passing, your loved ones won’t miss out financially.

Source: Money.co.uk
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According to SunLife, the average cost of a funeral in the UK is £3,953 (with the overall cost of dying at £9,200).

Funeral costs have increased by 116% since 2004 and are a significant cost which should be factored into the amount of life insurance you secure.

Source: SunLife.co.uk
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When factoring in cover for your children, you may wish to calculate the amount based on how long it is until they reach financial independence.

This could include childcare (£7,000 per year for part-time care), school expenses (£1,519 per school year for uniforms, lunches, stationary etc), as well as an additional sum for further education (this could be a contribution of up to £5,000 per year).

Sources: Daynurseries.co.uk, Primarytimes.co.uk & Savethestudent.org
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2 in 5 adults say they are relying on an inheritance to fund their retirement.

Factoring in an inheritance to your sum assured could allow loved ones to live a more financially comfortable life. Alternatively, you could leave a cash gift to a charity of your choosing.

Source: Moneyage.co.uk
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If you’re lucky enough to have your own savings or are part of the 30% of UK residents who already have a life insurance policy in place, this can provide financial protection for loved ones.

By entering your current cover, savings or death in service amount you can reduce the sum assured you require.

Source: Scottishbusinessnews.net
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Your total cover estimate

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How much is level vs decreasing term life insurance?

Both level term and decreasing term life insurance can be taken out through Reassured from 20p-a-day.

As your risk to the insurer decreases each year as your sum assured reduces, decreasing term life insurance can often be cheaper than level term life insurance.

The table below shows a price comparison between level term vs decreasing term life insurance.

Quotes are based on a non-smoker, in good health, with a 20-year term and £100,000 of cover:

AgeLevel term life insurance price per monthDecreasing term life insurance price per monthPrice difference %
20£3.59£3.81+6%
25£4.34£4.21-3%
30£4.38£4.49-3%
35£5.75£4.78-17%
40£8.12£5.39-34%
45£11.67£7.61-35%
50£17.26£11.20-35%


With any life insurance product, the younger you are, the cheaper your premiums will be.

It’s wise to take cover out sooner rather than later to lock in an affordable premium throughout the lifetime of your policy.

The exact price you pay for term life insurance will depend on key information that you’ll need to provide at the point of application.

Information required includes:

  • Age
  • Smoking status
  • Health & wellbeing
  • Occupation
  • Lifestyle choices
  • BMI
  • Sum assured
  • Policy term

These factors will help insurers assess the level of risk involved with offering you cover, and your monthly premiums will be calculated accordingly.

Compare level vs decreasing term life insurance through Reassured to identify the right option to meet your needs.

Did you know can buy level term and decreasing term life insurance online?

Both level and decreasing term life insurance are now available online through Reassured.

Buying life insurance online allows you to apply for and purchase a policy at a time and place that suits you.

If you know which option is best for you, you can get covered in just a few clicks.

Why not head to our buy life insurance online page to find out more? »

Compare Level vs Decreasing Term Life Insurance »

Can I take out joint level term and decreasing term life insurance?

Yes, both level term and decreasing term life insurance can be taken out as a joint policy.

Joint life insurance covers two lives simultaneously under one policy, meaning there’s only one premium to pay between both policyholders.

If you’re part of a couple, this could help you save money on your cover to help protect your home and/or family.

However, there will only be one pay out from a joint policy. After this the policy will expire and the surviving partner will need to secure new cover.

Whereas two single policies would provide two pay outs - essentially providing double the cover.

The table below shows a price comparison for both joint level and decreasing term vs two single policies.

Quotes are based on a non-smokers, in good health, with a 20-year term and £100,000 of cover:

AgeJoint level term life insurance2 single level term policiesJoint decreasing term life insurance2 single decreasing term policies
20£5.42£7.18£4.36£7.62
25£6.46£8.17£4.50£8.42
30£7.70£8.76£5.56£8.98
35£10.38£11.50£6.35£9.56
40£14.72£16.24£8.81£10.78
45£21.36£23.34£12.80£15.22
50£32.89£34.52£19.56£22.40


While joint life insurance can help you to save money (for example, two 20-year olds could save 75% if taking out a joint decreasing term policy), if it’s within your budget it could be worth taking out two single policies to provide a more comprehensive cover solution.

Reassured can help you to conduct a full joint vs two single policies comparison for both level and decreasing term life insurance. Simply get in touch.

Can I take out both level term and decreasing term life insurance?

Yes, if it’s within your budget and it meets your needs, it can be possible to take out level and decreasing term life insurance policies simultaneously.

This could be a decreasing term life insurance policy to cover your repayment mortgage and a level term life insurance policy to provide a fixed lump sum for your loved ones to cover other essential costs.

Why not speak to a friendly member of the Reassured team who can help you discover the right solution to meet your needs?

How long can my term length be?

With both level and decreasing term, your term length can be up to 40 years.

However, if taking out cover to help protect your home or expenses like family living costs, you may wish to have your policy term align with these.

For example, if your mortgage term is 30 years, then the term of your life insurance policy should be at least 30 years.

If you’re a parent taking out cover to help protect family living costs, you may wish to have your policy last until your children reach financial dependence (perhaps 18 or 21 if factoring in higher education costs).

Can critical illness cover be added?

Yes, for an additional cost, you can add critical illness cover to your level term or decreasing term life insurance policy.

Critical illness cover provides a lump sum pay out if you’re diagnosed with a life changing illness (such as stoke, heart attack, Parkinson’s disease, MS, Alzheimer’s and much more).

The funds could help to pay for any private medical care and/or be used to replace lost income if you were left unable to work.

This isn’t to be confused with terminal illness cover, which comes at no additional cost with all term life insurance policies through Reassured.

This allows you to make an early claim on your life insurance policy if you’re diagnosed with a life-threatening illness and are given 12 months or less to live.

Life insurance with critical illness cover starts from just £10 a month through Reassured º , simply get in touch for your fee free and no obligation quotes.

Repayment mortgage vs interest only-mortgage

Mortgage debt in the UK currently stands at £146,427, with average house prices now at £293,835 (rising 9.9% between 2021 and 2022)[2].

Helping to cover these costs is essential to ensure your loved ones can remain in your family home if the worst were to happen to you.

A simple way of working out which option is best for you is by looking at what type of mortgage you have.

Due to the large pay out potential, level term life insurance is often best suited to helping to protect a repayment mortgage.

Whereas a decreasing term life insurance is ideal for helping to protect a repayment mortgage as the sum assured can reduce in line with your remaining mortgage balance.

Alternatively, the fixed lump sum from a level term life insurance policy could help to pay off any remaining mortgage debt while providing additional funds for your loved ones.

Is life insurance compulsory if you take out a mortgage?

No, it’s not a legal requirement for you to secure life insurance when taking out a mortgage.

However, some mortgage lenders may require that you have life insurance in place before they release the funds - ensuring their risk is protected.

Don’t automatically buy life insurance through your mortgage lender as it’s unlikely you’ll get the best deal.

You could secure a better deal by comparing multiple quotes through a life insurance broker.

Why not read our in-depth mortgage life insurance page to find out more? »

Can level term and decreasing term life insurance be written in trust?

Yes, both level term and decreasing term life insurance can be written in trust.

Writing your life insurance in trust is a process that detaches your policy from your estate, allowing your loved ones to avoid/minimise 40% inheritance tax.

Inheritance tax is charged at 40% on anything which takes an estate over the £325,000 threshold.

Estates are made up of your money, possessions and property - with a life insurance pay out added to this it’s easy to exceed this amount.

Writing your life insurance results in the following benefits:

  1. Have more control over your pay out by nominating a trustee to distribute the funds as per your wishes
  2. Avoid/minimise 40% inheritance tax for your loved ones by detaching your policy from your estate
  3. Provide loved ones with a faster pay out by avoiding a length probate process

Reassured offer a free trust writing service on the majority of policies we sell, why not get in touch for more information?

Compare level and decreasing term life insurance quotes

There’s no right or wrong way to protect your family and your home.

It’s a case of finding the right policy to meet your specific needs and budget – whether that be level term life insurance, decreasing term life insurance or both.

The best way to find the right policy at the right price is to compare multiple quotes.

You could try and conduct this research yourself or you could save yourself time and money by enlisting the help of Reassured.

Why not put our award-winning team to work by using our broker service to compare quotes?

All quotes are fee-free, personalised and completely no-obligation, so get in touch.

Compare Life Insurance Quotes with Reassured »

Sources:

[1] https://moneytothemasses.com/quick-savings/insurance-2/life-insurance/decreasing-term-assurance-how-it-works-and-when-it-is-useful

[2] https://www.finder.com/uk/mortgage-statistics

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