Decreasing term life insurance

How it works

The premium generally stays level while the death benefit steps down on a published schedule. Because the average amount at risk is lower than a level policy of the same starting size, it costs less.

Ask for the actual schedule. "Decreasing in line with your mortgage" is a description, not a contract term — the schedule in the policy is what pays.

The mortgage mismatch

Two problems. The policy's schedule is fixed at issue and assumes an interest rate and term; if you remortgage, take a payment holiday, or the loan otherwise doesn't amortise as projected, the coverage and the balance drift apart.

Second, the coverage tracks the loan and nothing else. A family that has lost an earner still needs income, childcare and everything that isn't the mortgage — and by year fifteen the decreasing policy has very little left for any of it.

Where it genuinely fits

• A specific amortising debt you want covered and nothing else
• A business loan repaid on a fixed schedule
• Supplementing level coverage that already handles the family's income need
• A budget that genuinely cannot stretch to level term — some coverage beats none

The comparison worth making

Get quotes for both. The gap between decreasing term and level term at the same starting amount is often smaller than people expect, and level coverage doesn't shrink underneath a need you may have misjudged.

If the difference is modest, level is usually the better buy.

Before signing

• Get the reduction schedule in writing
• Confirm whether the premium is level for the full term
• Ask whether it's convertible — many decreasing policies aren't
• Check whether the policy is tied to a specific lender or assignable
• Compare against level term at the same amount before deciding