21/04/2021

10 mins

Decreasing Term Mortgage Life Insurance pays out a cash lump sum to repay your mortgage should you pass away. The amount insured is designed to fall alongside a repayment mortgage, reaching zero just like the loan balance by the end of the policy term.

As the level of cover reduces over time it is one of the cheapest forms of Life Insurance.
Provides you with peace of mind that comes from knowing your loved ones and home will be financially secure should the worst happen.
You have the option to add Critical Illness Insurance to cover the mortgage should you suffer a serious illness such as cancer.

What Does Reducing Mortgage Insurance Cover?

Death

Should you die within the term of the policy this cover pays out a lump sum that can be used repay the mortgage loan.

Terminal Illness

Most leading Life Assurance policies will also pay out early if you are diagnosed with less than 12 months to live by a medical practitioner.

Critical Illness Cover

This option also enables the plan to pay out if you were to suffer any one of the conditions named in the policy terms, which usually includes cancer, heart attacks and strokes.

Critical conditions covered typically number around 40, but there are policies which will cover fewer than 10 conditions and those which will cover more than 100, so read your policy terms carefully.

As the chances of suffering a critical illness is far higher than death it often makes sense to consider adding this option to your policy.

How Does Decreasing Mortgage Cover Work?

The purpose of Decreasing Mortgage Life Cover is to protect a principal repayment mortgage.

The amount of cover falls over time to match your decreasing mortgage liability. The policy assumes an interest rate – providing this equals your mortgage interest rate, the cover will decline in step with your debt.

life insurance decreasing cover graph
As the amount of cover you receive from your policy falls over time to reflect the amount of mortgage debt outstanding, costs are typically lower than if you were applying for a policy with a level benefit where the risk to the insurer remains constant over time.

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Do I Need Mortgage Life Insurance?

We’ve used our Life Expectancy Calculator below to determine the risk of death for a healthy male of three different ages over the course of a 25 year mortgage term.

Generally speaking, the public at large underestimates the risk of passing away by a considerable margin.

According to our Health and Protection Survey, the public believes their risk of death to be SIX TIMES lower than reality.

What’s more, according to another Drewberry survey, a quarter of UK adults would have a mortgage of more than £100,000 to repay tomorrow if their income suddenly stopped, either through death or illness.

As such, given the risk is greater than many people assume, it can pay to have Mortgage Life Insurance to protect your home and loved ones should the worst happen.

Age 25	Age 35	Age 45
1 in 33	1 in 15	1 in 6

Life Expectancy Calculator

A bit morbid we know, but this tool works out the risk of you passing away based on ONS Life Expectancy Data

How Much Does Decreasing Mortgage Life Insurance Cost?

Life Insurance is not usually costly; this said, there are still some features of your cover that you may be able to adjust to reduce your policy’s premiums. You can find out how much your policy might cost by using our Mortgage Protection Insurance Calculator.

Factors Affecting the Cost of Cover…

Age
As we age our health declines and the likelihood of passing away increases. As a result, individuals who are older and applying for Decreasing Term Mortgage life Insurance can expect to pay more than a younger individual.
Medical History and Current Health
Your medical history and current health are used by your insurer to determine how likely it is that you’ll claim on your policy. If you have an extensive medical history or have been diagnosed with a serious illness, then you can expect your insurance to cost more than someone who is healthy.
Smoker Status
Smoking is known to shorten your lifespan due to the increased risk of developing serious illnesses; as such, smokers will pay more for their Life Insurance.
Amount of Cover
The larger your mortgage and the more cover you therefore need to protect it, the higher your premiums will be.
Length of Policy
Following the same logic that causes insurers to raise the cost of policies for older applicants, keeping the policy for longer will also increase the cost because the risk of you passing away during the term of the policy increases.
Type of Premium
You have two options for premiums with Life Insurance: guaranteed and reviewable premiums. Guaranteed premiums, which are set at the start of your policy, tend to be the most expensive option at first. However, they will remain fixed throughout the life of the policy. Reviewable premiums can be reviewed by the insurer at any time during the policy and so are likely to rise over time, thus becoming more expensive the longer you hold the policy.

Cost of Mortgage Life Insurance

In the below table, we’ve highlighted the cost of a £250,000 Decreasing Mortgage Life Insurance policy which runs for 25 years. The individual is a healthy office worker of three different ages.

Prices were collected on April 8th, 2019, and represent the cheapest premiums from across the entire UK market.

Age	🚭	🚬
30 Years Old	£6.77	£11.49
40 Years Old	£11.92	£22.64
50 Years Old	£27.71	£64.78

Frequently Asked Questions

Level or Decreasing Life Insurance?
A Decreasing Term Mortgage Life policy is designed to cover a repayment mortgage.

If you have an interest-only mortgage – where you only need to pay off the interest and so the mortgage balance doesn’t fall over time – then you would likely need a Level Term Life Insurance policy.

While the coverage of a Decreasing Term policy will fall over time, a Level Term policy will stay the same and give you the same level of cover at the end of your policy as you had at the start.

Level Life Insurance would also be better suited if you intend your insurance payout to do more than simply pay off your mortgage, like help your family afford your funeral or give them a bit of financial support in the coming years over and above repaying the mortgage.

To find out which type of Life Insurance is better suited to your needs, you can read our Level vs Decreasing Life Insurance guide.
Should I Add Critical Illness Cover?
If you want to expand the cover that you receive from your Decreasing Term Life Insurance policy, most insurers will offer the option to add Critical Illness Insurance.
Critical Illness Insurance will cover you for a list of critical health conditions specified by your provider.
Policies can cover anywhere between 40 to more than 100 conditions. The most common claims on these policies are cancer, heart attacks and strokes.
If you are diagnosed with any of the conditions included on your policy document’s list of covered critical illnesses, then your policy will pay out a lump sum to you.
Do I Need Decreasing Life with Critical Illness Cover?
The risk of becoming critically ill is much higher than the risk of passing away, which is why adding Critical Illness Insurance to Mortgage Life Insurance adds to the cost significantly.
However, if you’re concerned about getting some kind of sickness insurance in place, this can be a cost-effective means of securing it as it’s usually cheaper to buy a combined Life and Critical Illness policy than two separate policies.
It’s important to remember that any combined policy will only pay out once, regardless of whether you claim for a critical illness or a covered life.
Providing you are using your policy to protect your mortgage, this would not be an issue. Regardless of how or when the policy paid out, it would still cover your mortgage and allow you to pay off your debt.
However, if you wanted some form of Life Insurance to remain after being diagnosed as critically ill, a combined policy wouldn’t provide that.
You’d have to buy a new Life Insurance policy at a time where you’re older and have had a critical illness, which will significantly increase premiums.

If you are looking for an insurance policy that can support your finances while you are injured or unwell, we often recommend Income Protection over Critical Illness Insurance. This is because Income Protection will cover any health condition that prevents you from working rather than just an insurer-specified critical illness and the best policies will support you with long-term monthly payouts right up until retirement.

Victoria Slade
Independent Protection Expert at Drewberry
What is Waiver of Premium?
Waiver of premium means that your insurance provider will ‘waive’ your premiums if you are unable to work due to illness or injury. Effectively, this means they’ll pay the premium for you until you recover.

Please note that there is often an excess period before the waiver of premium would kick in. However, once it does begin, it can last until you either return to work or the decreasing term insurance policy ends.
Can We Get Joint Decreasing Life Insurance?
If you share a mortgage with your partner and both require Life Cover, you can share a joint policy that will pay out if either person dies or is diagnosed with a terminal illness.

Typically, these policies will only pay out once on the first instance of death or terminal illness. This means that after the first partner dies and the payout has been used to pay off the mortgage, the policy will end and the other surviving partner will be left without Life Insurance.

While the mortgage would then be repaid, this could be problematic for the surviving individual.

In such instances, it may make more sense to purchase two separate policies, one for each partner. This typically only costs around 15-20% more than buying joint insurance but effectively secures two payouts, once for each death.

Compare UK Decreasing Mortgage Life Insurance Providers

The best Mortgage Life Insurance for your needs will depend on your individual circumstances. It’s usually something that’s best discussed with your adviser to ensure you take out the most appropriate cover for you.

However, you can compare the top 10 UK Life Insurance companies below. Included in the table are links through to a more thorough review page for each insurer mentioned.

Aegon

Aegon’s Scotland-based UK operations are wholly owned and operated by Dutch insurer Aegon N.V.

Minimum entry age: 18
Maximum entry age: 89
Minimum term: 1 year
Maximum term: 50 years (cover must end before an individual’s 90th birthday)
Maximum cover: Unlimited

AIG

US insurance giant American International Group, Inc. (AIG) was first founded in 1919 and since then has grown to operate on a global scale. It provides a range of protection products for both individuals and businesses.

Minimum entry age: 18
Maximum entry age: 88
Minimum term: 2 years
Maximum term: 70 years (cover must end before an individual’s 90th birthday)
Maximum cover: Unlimited

Aviva

Aviva was founded in 1797, but the Aviva brand as it is today was formed in 2000 by the merger of Norwich Union and CGU PLC.

Minimum entry age: 18
Maximum entry age: 89
Minimum term: 1 year
Maximum term: 50 years (cover must end before an individual’s 90th birthday)
Maximum cover: Unlimited

Guardian

Guardian is a relaunched protection brand with a number of unique features to its policies.

Minimum entry age: 18
Maximum entry age: 65
Minimum term: 1 year (Level and Increasing Cover) / 5 years (Decreasing cover)
Maximum term: 72 years (cover must end before an individual’s 90th birthday)
Maximum cover: £15 million

Legal & General

L&G was formed as an insurance company for lawyers, by lawyers in 1836. It has since grown to become one of the country’s best-known financial services companies

Minimum entry age: 18
Maximum entry age: 77
Minimum term: 1 year (Level Cover) / 5 years (Decreasing cover)
Maximum term: 50 years (cover must end before an individual’s 90th birthday)
Maximum cover: Unlimited

Liverpool Victoria

LV is the UK’s largest friendly society, with more than 5.8 million customers, 1.1 million of whom are members.

Minimum entry age: 17
Maximum entry age: 79 (Level or Decreasing cover) / 59 (inflation-linked cover)
Minimum term: 5 years
Maximum term: 45 years
Maximum cover: Unlimited

Royal London

Royal London previously operated Scottish Provident and Bright Grey as separate brands providing Critical Illness Insurance under the Royal London umbrella. From 2016, both were merged into the main Royal London brand.

Minimum entry age: 18
Maximum entry age: 70
Minimum term: 1 year
Maximum term: 72 years
Maximum cover: Unlimited

Scottish Widows

Founded in 1812, Scottish Widows is today part of Lloyds Banking Group.

Minimum entry age: 18
Maximum entry age: 79 (must end before individual’s 90th birthday)
Minimum term: 1 year (Level and Increasing) / 3 years (Decreasing)
Maximum term: 72 years
Maximum cover: £25,000,000 (Level and Decreasing) / £15,000,000 (Increasing)

Vitality

Vitality entered the UK market in 2007 with a joint venture with PruHealth and PruProtect, part of the Prudential Group. It has since bought out Prudential and is now branded solely as Vitality.

Minimum entry age: 16
Maximum entry age: 74 (cover must end before age 90)
Minimum term: 5 years
Maximum term: No maximum (cover must end before age 90)
Maximum cover: £20,000,000

Zurich

Zurich is a Swiss-based global insurance giant, operating in more than 170 countries. It employs around 55,000 employees worldwide, including 4,500 in the UK.

Minimum entry age: 16
Maximum entry age: 83 (must end before individual’s 90th birthday)
Minimum term: 1 year
Maximum term: 50 years
Maximum cover: £40 million

Speak to Mortgage Life Insurance Experts

If you would like some more information or need help finding and comparing Decreasing Term Life Insurance quotes, please do not hesitate to get in touch.

Why Speak to Us…

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.

There is no fee for our service
We are independent and impartial
Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
We’ve got bargaining power on our side
This allows us to negotiate better premiums for you than you going direct yourself.
You’ll speak to a dedicated expert from start to finish
You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
Benefit from our 5-star service
We pride ourselves on providing a 5-star service, as can be seen from our 3900 and growing independent client reviews rating us at 4.92 / 5.
Gain the protection of regulated advice
You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
Claims support when you need it the most
You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.