Decreasing Term Assurance (sometimes known as mortgage protection insurance (don’t confuse this with mortgage payment protection insurance), is a life Assurance contract where the cover reduces over time, as the outstanding balance on your mortgage decreases.

If you have a repayment mortgage you will be aware that the size of the debt is reducing as you make your repayments each month. The amount the debt reduces in the early years is quite small but as time goes by that reduction increases. See example below:

If you have a repayment mortgage, and just want to protect your mortgage upon death, then decreasing term assurance is the most appropriate and cost effective method for you.

It is for this reason we have decreasing term assurance. This cover reduces at the same rate as the debt which means that if you die during the term of the debt the life insurance can pay out exactly what is needed to cover the outstanding debt, providing interest rates have no risen above the lenders specified amount when taking out the policy, this rarely happens as the levels are set very high, usually around 10%.

As the cover reduces over time the cost of cover is greatly reduced. As you age, the cost of providing life assurance increases significantly as the risk of you dying increases with age. However in the case of mortgage protection insurance the provider’s exposure is reducing, as the cover is reducing in line with the size of the mortgage debt, and this cost saving that is being passed onto you by way of cheaper premiums.

This cover is not suitable with an interest only mortgage, but may be used in conjunction with a split repayments and interest only mortgage. For more advise on Decreasing Term Assurance and a free no obligation quote, please call and speak to one of our life assurance specialists on 01282 861 181.