A Guide To Mortgage Decreasing Term Life Assurance

Mortgage decreasing term life assurance is also known as decreasing life insurance, and it exists to help protect a mortgage payment and ensure that the policyholder's family could afford to remain in their home in the event of the policyholder's death.

When would you need to take out a mortgage decreasing term life assurance policy?

When people want to ensure that their mortgage payment - both capital and interest - can be met if they die, then this policy can help. If the policyholder dies when the policy is in place, it will pay a cash sum designed to cover the remainder of the mortgage. This provides security for their family.

How does it work?

Decreasing term life insurance protects both the capital and interest portion of a mortgage payment. Because a mortgage decreases over time, the insurance cover decreases with it. This is reflected in the premium paid.

Why might someone choose this type of policy?

This policy is designed to ensure that a family could meet the mortgage payments on their home in the event of the policyholder's death. Customers pay anything from £5 a month for this type of insurance and premiums stay the same unless the policy is changed. Some policies include terminal illness cover and free life cover during the purchase period of a property.

Critical illness add-on

Many mortgage decreasing term life assurance policies also have critical illness cover as an optional extra. This pays out a defined cash sum if the policyholder is diagnosed with an illness listed in the policy after the qualifying period. Again, it gives the policyholder and their family a cash sum to cover financial costs and bills if they are unable to work for a period of time.

Where to buy term life assurance from

There are a large number of providers offering term life insurance and their services will all differ slightly, so most individuals will do a like-for-like comparison or seek independent financial advice when establishing which insurance policies are right for their needs. Sometimes advisors can get access to deals which aren't otherwise marketed directly to end customers. In this instance, the customer may gain a better price or a more tailored deal than they could access themselves.

Things to bear in mind

The policyholder must always keep up with the premium payments, or the policy will become invalidated. Most give the option of paying annually or monthly. It is important to ensure that the policy lasts for as long as the mortgage term itself if the intention is to have cover in place for the full duration.

Mortgage decreasing term life assurance is not a savings product or an investment vehicle, so the insurance policy has no cash value in itself.

Seeking expert help

For peace of mind that they are planning in the right way, most people will seek financial advice from an IFA when they are planning their will, tax affairs and family protection.