We invest in life insurance to provide money for our loved ones in the event of our death with the idea being to pay off debts, such as a mortgage, loans, credit cards etc, and to make sure there are funds available to meet our family’s other living expenses.
One of the two main policy types (along with a term policy) is called decreasing term insurance. With this, the sum insured reduces over the term of the policy – which means the premiums can be less than for a level term policy. It’s usually purchased to clear an existing debt with arguably the most common one being the mortgage, and the payout will decrease over time as does the actual debt.
Decreasing term life insurance is popular with people on a tighter budget due to the monthly payments being lower than those you would pay with level term cover. However, many people prefer to pay for level term insurance, as even though they have a repayment mortgage, over time this will free up more spare capital should you die during the policy. This extra payout cash can be used for other purposes.
It is becoming more popular for mortgage lenders to require borrowers to take out life insurance when they agree to a mortgage. For the mortgage provider, it is a good way for them to ensure they get the money paid back, even if the borrower passes away. Due to their relatively low cost, the borrower is usually happy to have this included in their agreement.
Decreasing term insurance is not appropriate for someone with an interest-only mortgage, where the capital debt is only repaid at the end of the mortgage term.
Speak to a consultant today to see if this type of life insurance is relevant to protecting your family.