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Life Insurance: Level or Decreasing Term?


Most people will have a mortgage at some stage. It usually constitutes the most important financial investment we will ever undertake. As such, it can be a great cause of stress. Ensuring you maintain your wellness can become hard when dealing with such large sums of money. It is wise to protect your investment when it is essentially a debt secured against your house. You default – you lose the house.

If you have a family you will want to make sure that they are provided for in the event of your death. Life insurance mitigates against the risk of your family being able to keep up with payments. But it can be confusing for people who are new to life insurance. What are my choices? What are the benefits of those choices? Clear, uncomplicated facts are what’s needed to allay your concerns. With that in mind, let’s take a look at what you’ll find on the life insurance market.

There are basically two types of life insurance: level term and decreasing life term. There are distinct advantages and disadvantages to each.

Level term life insurance is usually the more expensive option. However, it’s primary advantage over decreasing term is that the value of the policy remains the same regardless of how much time has elapsed. For example, if you took out insurance worth 150,000 your estate would receive the full amount whether you died at the start of the term or towards the end of the term. You pay a monthly premium (which varies hugely between providers). Level term life insurance is a good option for people who may have other debts to pay off, as the extra money can be used towards car repayments or credit cards. Depending on how much debt you have and how long you’ve been

The other option, decreasing term insurance, is structured so that, whilst the premium is generally cheaper, your family will only receive the amount that is outstanding on the mortgage repayments. So, if you owed 75,000 of the 150,000 mortgage at the time of your death, you would only receive the  75,000 with no extra funds left over for other financial obligations.

Although these can be sensitive issues, that’s precisely why it makes sense to sort out these matters early in the process of house-ownership. Browse around the internet for the best policy for your circumstances, and always go with a reputable firm – try the Legal & General website for starters, as they have a solid history of financial products, and will offer you an online quote on cheap life insurance.

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Last section update 19 April 2016