Decreasing term assurance provides life insurance cover that decreases over a set number of years. This can be useful for people with a mortgage or other loan that decreases over time, as the amount of cover needed is less as time goes on. The payout could help pay off your mortgage or loan if you should die during the term plan. Typically there is no cash value at any time.

The monthly premiums you pay remain the same throughout the policy, but are set to take into account the reducing amount of cover, so they are often cheaper than with other types of life insurance.

Often this type of cover also pays out if you are diagnosed with a terminal illness, and usually there are options to add on other types of cover, like critical illness.

Pros

• You don’t pay for more cover than you really need. If you die within the term of the policy, it will pay out a lump sum free of income tax and capital gains tax to help clear whatever is left outstanding on your repayment mortgage or loan at that point.
• Monthly payments stay the same throughout the policy and, because of the reducing level of cover, they are often cheaper than with other types of life insurance.
• You can set the cover to run alongside your loan, or even finish earlier than your loan if you don’t want to protect a small amount of the debt.
• If you move your loan during the period of cover, you can usually use the same policy with the new loan.

Cons

• If your health is poor when the policy starts, the cover will be more expensive or you might be refused cover altogether.
• The lump sum will probably only provide enough to help cover the outstanding amount of your loan; it may not leave any other money for your dependants.
• If you don’t make a claim within the time of the policy, the cover ends and you don’t get any money back.
• There may be a minimum and maximum amount of cover you can take out, so check you can get what you need.

If you have a repayment mortgage then this product may be a good option for you, as the amount of cover will reduce roughly in line with the amount you owe on your mortgage.

Your family or friends will be able to use the money to help pay off the mortgage if you die during the policy term, which means that the house may not have to be sold or reclaimed by the mortgage lender.

You’ll be offered some form of life insurance when you take out a repayment mortgage, and decreasing term assurance is likely to be one of the options. If you want to research the market for yourself, look at insurance companies, banks, building societies and other financial companies. You can usually buy direct through the Internet or over the phone, or you can speak to a financial adviser.

Think about it – Make sure you’ve thought carefully about what you want and taken into consideration any cover you already have or cover you are entitled to from your employer. You don’t want to be paying for more cover than you need.

Check the small print – Make sure you understand what is and isn’t covered as these can vary from company to company.

Consider all your options – Ask what’s available and make sure you understand all the extra options.

Shop around – Different companies offer different levels of cover at different prices. Make sure you shop around and that the cover you choose is the most appropriate for your needs and circumstances.

Writing in trust – Consider having your policy written under trust to ensure that you minimise the amount of inheritance tax that may need to be paid.

If unsure, get advice – If you’re unsure of what to do next, speak to a financial adviser who will be able to help you make the right choice.