Decreasing Term Assurance Protection
Decreasing Term Assurance
This is often a common form of Life Insurance used to help cover a mortgage in the event of the death of the mortgagee. It’s the normally least expensive of the Term Assurances, Decreasing Term Assurance does what it says on the label. The level of benefit decreases as the term of the policy runs; the premiums do not however reduce. The premiums are fixed throughout the policy term, and the premium level is lower than that of Level Term Assurance as a result of the decreasing benefit. This type of life assurance is commonly used to protect Capital & Repayment mortgage debt.
Example; Client takes out a £150,000 mortgage over 20 years, the balance of the mortgage will reduce gradually over the 20 years to a £0 balance at the end, – the decreasing term assurance works in a similar way, with the initial amount taken at £150,000, this amount of Life cover also reduces year on year throughout the mortgage term.
Typically the decreasing term assurance policy reduces the protection assuming a Mortgage Interest Rate of 10%. Many are paying mortgage interest at around 5% and, providing interest rates do not go over 10%, the benefit should reduce slower than the mortgage debt, ensuring repayment of the mortgage debt in full. However, there is no guarantee that the level of cover will match the outstanding debt upon a claim.
THE PLAN WILL HAVE NO CASH IN VALUE AT ANY TIME AND WILL CEASE AT THE END OF THE TERM. IF PREMIUMS ARE NOT MAINTAINED, THEN COVER WILL LAPSE.
Benefits Of Decreasing Term Assurance
- Provides a lump sum on death or terminal illness which can be used to cover outstanding repayments on a mortgage or loan
- The level of cover reduces each year – in line with the sum you owe
- If you die within the term of the policy, it will pay out a lump sum, to help clear whatever is outstanding on your debt at that point, however, there is no guarantee that the lump sum paid will enable you to clear your outstanding debt in full
Please be aware that this type of decreasing term assurance is based on an assessment of the health of the applicant.