Decreasing Term Life Insurance

Introduction to decreasing term life insurance

Decreasing Term Life Insurance, also referred to as mortgage protection life insurance, is a type of life insurance that is often chosen by people when they take out a new mortgage. It is designed to ensure that a repayment mortgage is paid off in full in the event that a mortgage holder dies within the term of the mortgage.

The amount of cover with decreasing term life insurance is set to reduce in line with the size of your repayment mortgage. Therefore, as the term (time) progresses the maximum amount of payout that an insurance company would have to make if you were to die, gets smaller. Therefore, decreasing term life insurance often costs less than either level term life insurance or whole of life insurance.

Death is a horrible subject to talk or even think about, but it is a fact that some people do die during the term of their mortgage. Obtaining and maintaining decreasing term life insurance can help ensure that your surviving spouse or partner, and your family, are not left having to pay a mortgage that they cannot afford. Failing to protect your mortgage in this way may mean that not only do your family lose you they also lose their home and are left in financial hardship.

Even if a mortgage is in your sole name, and you do not have any dependents (eg. children) you may wish to ensure that the mortgage is paid off if you die. The unencumbered (mortgage free) property can then be left as an asset in your will.

Please note : Decreasing term life insurance is only usually suitable for a repayment mortgage. If you have an interest only mortgage, you will require level term life insurance in order to pay off the mortgage in full.

Decreasing Term Life Insurance at a glance

Decreasing Term Life Insurance can be taken out in a sole name, or in joint names.

Decreasing Term Life Insurance is a type of term insurance (assurance) that pays out if you die within a specified period of time (the term).

It is usually used to pay off a repayment mortgage in the event of death during the mortgage term.

It only pays out if the death happens within the specified 'term' of the policy.

It is a pure protection (insurance) policy and NOT an investment. If you survive the term, you will receive nothing and the policy will lapse. It ONLY pays out on death during the term.

It is generally the cheapest form of life insurance, cheaper than level term life insurance and cheaper than whole of life insurance.

Some additional options

You can opt to include Critical Illness Cover to a decreasing term life insurance policy. It will then pay out in the event that you are diagnosed with one of the specified critical illnesses covered by the policy, during the policy term.

Waiver of Premium Benefit. You can pay a small amount extra (usually between 2% - 4% extra on top of your premium) for waiver of premium benefit. This benefit means that the insurer will waive the premium (i.e. you will not have to pay) in the event you are off work due to accident or illness. This means that your mortgage can remain protected, rather than the policy lapsing, in the event that you are off work due to accident or illness.

There are additional options applicable to some decreasing term life insurance that you should discuss with your EFS adviser.



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