Life insurance guide
One shrinks with your mortgage and costs less. One stays fixed and protects a family's standard of living. Here is how to choose — and why many households buy both.
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| Feature | Decreasing term | Level term |
|---|---|---|
| Payout over time | Falls each year to zero | Fixed for the whole term |
| Premium | Fixed, and lower | Fixed, and higher |
| Best for | Capital repayment mortgage | Interest-only mortgage, family income, IHT |
| Typical term | Matched to mortgage term | Until children are independent, or whole term |
| Index-linking | Rarely relevant | Commonly added to beat inflation |
| Cash value at end | None | None |
Most advisers do not treat this as an either-or decision. A typical structure is decreasing cover sized to the mortgage, plus a smaller level policy sized to family living costs. The mortgage layer disappears as the debt clears; the family layer stays constant until children are independent.
Splitting cover across two policies also gives you flexibility later. You can cancel or reduce one without re-underwriting the other, and a claim on one does not end the other.
Whichever route you take, write the policy in trust where appropriate. It usually keeps the payout outside your estate for inheritance tax and gets money to your family in weeks rather than waiting on probate.
Not sure how big either layer should be? Use the life cover calculator to size it first.
With decreasing term cover the payout falls each year, roughly in line with a repayment mortgage, and the premium stays the same. With level term cover the payout stays fixed for the whole term. Level term costs more because the insurer's liability never reduces.
Yes, usually by around 20 to 40 per cent for the same starting sum assured and term, because the insurer's exposure falls every year. That saving is real, but it only makes sense if the debt you are covering also falls.
For a capital repayment mortgage, decreasing term cover tracks the falling balance and is the cheaper, well-matched option. For an interest-only mortgage the balance never reduces, so decreasing cover would leave a growing shortfall — level term is the correct choice there.
No. Term assurance of either type has no cash value and pays nothing if you survive the term. With decreasing cover, the sum assured simply reaches zero as the term ends, which is why it is priced lower.
Yes, and it is a common structure. Many households run decreasing cover sized to the mortgage alongside a smaller level policy for family income and living costs. Two policies also mean you can cancel one later without disturbing the other.
It is worth it when the need does not shrink — an interest-only mortgage, a family that needs a fixed lump sum, inheritance tax planning, or business protection. If the only need is a repayment mortgage, the extra premium usually buys little.
Guaranteed premiums stay fixed for the whole term on both types and are what most UK buyers choose. Reviewable premiums start cheaper but can be re-priced by the insurer, typically every five years, so budget carefully before choosing them.
An adviser will price decreasing and level cover side by side across the UK market so you can see exactly what the extra certainty costs.
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