Guide
Decreasing term life insurance explained
What is decreasing term life insurance?
Decreasing term life insurance is a type of life insurance where the payout reduces over time. If you die or are diagnosed with a terminal illness while the plan is in place, your loved ones will receive a tax-free lump sum. The amount they receive will eventually reduce to zero at the end of the plan.
This type of life insurance can help pay off debts, such as a repayment mortgage, that also reduce over time. So, the closer to the end of the life insurance plan you are, the smaller the debt to pay off. This can make it cheaper to buy than level term insurance where the payout doesn’t reduce over time.
How does decreasing term life insurance work?
With decreasing term life insurance, you choose how long you want the plan to be in place. This can be anything from 5 to 70 years. But usually, you’d want the insurance in place for as long as you have the loan. So, if you have a 25 year repayment mortgage, you’d want your decreasing term life insurance in place for the same length of time.
Your provider will give you a quote based on the amount of the cover, where you live, your age and whether you smoke or not. This is usually a monthly amount and will be what you pay throughout the term of the plan. Your premiums don't decrease as your cover decreases. They stay the same throughout the time the plan is in place.
The insurance payout reduces over time. So, if you die five years into a 25 year plan, your loved ones will receive a larger payout than if you die 20 years into a 25 year plan. But as your debt should have reduced as well, your family will have less to pay back. It’s important to check that your decreasing term policy will still cover your debts as time goes on.
When the plan comes to an end, your cover will stop. If you take out new debts, or extend existing ones, you’ll need to take out a new life insurance plan to cover repaying the debt if you die.
Decreasing term life insurance - pros and cons
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Pros |
Cons |
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Affordable. Decreasing term life insurance is usually cheaper to buy than other types of life insurance. This makes it more affordable, especially for first time buyers. |
Check you’re not underinsured. Decreasing term life insurance will reduce at a set rate each year. However, your mortgage interest rate will vary. Make sure that as your life insurance cover decreases, it’s still enough to pay off your mortgage. |
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Cost-effective. You only pay for the level of insurance you need. As your debts reduce, so does your cover. This makes decreasing term life insurance very cost-effective. |
Only for repayment mortgages. If you have an interest only mortgage, this type of insurance is not suitable for you. Because the payout reduces over time, it won't cover paying off the balance of an interest only mortgage at the end of the plan. |
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Target your debt. You can use this insurance to specifically target debts such as a repayment mortgage or other repayment loans. So, if the worst happens, your loved ones will receive a lump sum that they can use to repay any debts. |
Limited cover. If you take out the plan to only cover your mortgage, it may not be enough to cover funeral costs for example. To overcome this, you can have a level term life insurance plan as well as a decreasing term life insurance plan. |
Who should consider decreasing term life insurance?
This type of life insurance is usually taken out by homeowners with a repayment mortgage. This is because it’s ideal for paying off debts that reduce over time. It’s also known as mortgage protection insurance.
However, it can be put in place to repay any debt that reduces over time, such as a loan for a car. Decreasing term life insurance can cover the debt if you die, so your family won’t need to sell the car.
If you have a young family that rely on your income, this insurance can provide a financial safety net. As your children get older and become financially independent, the amount they receive when you die reduces.
Decreasing term vs level term life insurance
Level term life insurance pays out the same amount whenever you die. But the payout for decreasing term life insurance reduces each year. Let’s have a look at how they compare.
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Decreasing term life insurance |
Level term life insurance |
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Payout on death |
Reduces each year. |
Stays the same. |
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Suitable for |
Debts that reduce over time, like a repayment mortgage. |
Debts that don’t reduce, like an interest only mortgage. |
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Cost |
Tends to be cheaper than other types of life insurance. |
Very affordable depending on your age. |
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Cover |
May not provide enough cover as you get towards the end of the plan. |
Should provide enough cover throughout the plan as long as the debt doesn’t increase. |
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Premiums |
Stay the same throughout the term of the plan. |
Stay the same throughout the term of the plan. |
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Cash in value |
No cash in value. When the plan ends so does your cover. |
No cash in value. When the plan ends so does your cover. |
Decreasing term life insurance and mortgage protection
Taking out a mortgage to buy a home is one of the biggest financial decisions you’ll make during your life. If something bad were to happen to you, you wouldn’t want to leave that debt for your family to pay back. So, it makes sense to get mortgage protection in the shape of an insurance plan. It’s also sometimes a condition of your mortgage that you take out insurance on the loan.
Decreasing term life insurance is a good way to provide a lump sum for your family if you die. They can use it to pay off your repayment mortgage. As you pay back your mortgage over time, the amount you’d need to repay reduces. The payout from decreasing term life insurance also reduces each year, eventually reducing to zero at the end of the term of the plan.
If you have an interest only mortgage, you’re not repaying the loan over time, only the interest. This means you’d need level term life insurance to repay your mortgage if you died. This type of insurance pays out a set amount at any stage of the plan. The payout doesn’t decrease over time.
Decreasing term life insurance – things to consider
When choosing decreasing term life insurance there are a few things to consider.
How much insurance do you need?
If the insurance is to cover a repayment mortgage, make sure that the payout decreases at roughly the same rate as you pay back your mortgage. If there’s a shortfall, your family may struggle to repay it. Remember that only the payout decreases. Your premiums stay the same throughout the time the plan is in place.
How long do you need the insurance?
Most providers offer cover from 5 to 70 years. Ideally, you’d want cover for the whole of the time you’re paying back the loan.
Should your partner get cover too?
It could be difficult for one partner to manage the loan repayments by themselves if the other dies. Joint decreasing term life insurance is available and can be easily set up for those with a joint mortgage.
Is it the right type of cover?
Decreasing term life insurance is only really suitable for repaying a loan that decreases over time. So, if you have a loan that needs to be repaid in full at some point in the future, you may want to look at level term life insurance instead.
If you want cover that pays out whenever you die – with no end date, then whole of life cover is more suitable.
Alternatives to decreasing term life insurance
Life insurance policies only pay out when you die or are diagnosed with a terminal illness. If you get sick or injured and can no longer work, you can look at supplementing your income with other types of insurance.
Critical illness cover or Serious Illness Cover pays out a lump sum if you’re affected by a serious illness, like cancer. The money can be used to help pay bills, reduce your mortgage or aid your recovery.
Income protection insurance provides a regular stream of income if you can no longer work due to illness or injury. This money can be used to help pay your mortgage payments for example.
These types of insurance won’t necessarily be enough to pay off your mortgage, but they can help support you financially when you get sick. You can take out critical illness and income protection insurance for added protection with your life insurance.
Vitality life insurance
We provide life insurance for every stage of your life. Here are some of the benefits of taking out life insurance with Vitality:
- A brand you can trust - In 2023, we paid out 99.7% of life insurance claims.*
- Get a lower monthly premium upfront when you add Optimiser to your plan. Keep your premiums low when you stay active.
- Access to Vitality partner discounts and rewards.
- Get free no-obligation advice. Our advisers offer expert advice to help you make the right decisions.
Decreasing term life insurance FAQ
Which type of term life cover should I get?
It depends on what you want the payout to cover if you die. Decreasing term life insurance is only really suitable for repaying a loan that decreases over time. So is good for paying off a repayment mortgage. Level term life insurance gives you a lump sum that doesn’t change, so is useful for debts that don’t reduce, like an interest only mortgage.
Do I have to take out decreasing term life insurance if I have a mortgage?
There’s no legal requirement to take out any life insurance when you have a mortgage. But your provider may make it a condition of your mortgage that you have some means of repaying the debt if you die.
Can I add critical illness cover to my decreasing term life insurance?
Yes, it’s possible to take out critical illness cover at the same time as decreasing term life insurance. This gives you extra security in case you become seriously unwell.
What happens at the end of my policy term?
When the plan comes to an end, your cover will stop. If you take out new debts, or extend existing ones, you’ll need to take out a new life insurance plan to cover repaying the debt if you die.
Can I get a joint decreasing term insurance policy?
Yes, you can add your partner to the cover as well. The insurance will usually pay out when the first partner dies.
How much does decreasing term life insurance cost?
The amount you pay depends on:
- how much insurance you want
- how long you need it for
- your age
- where you live
- your health and lifestyle
Relevant guides and articles
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Term life insurance
![Older couple on laptop]()
Term life insurance covers you for a specific amount of time. You choose the term, and if you pass away or become terminally ill during that term, your family receive a lump sum.
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Income protection insurance
![couple with laptop]()
Income protection insurance covers your monthly salary if you get sick and can't work.
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Serious Illness Cover
![Drip stand in hospital corridor]()
Serious and critical illness cover pays out a lump sum if you are diagnosed with a serious condition. The condition may not be life threatening, but it still impacts your life.
See all our life insurance guides