Should you buy term life insurance? It could be a good idea, but which policy should you take out : level term life insurance or decreasing term life insurance ?
In this guide, we will answer these questions, and we will compare level term life insurance and decreasing term life insurance so that you’ll know exactly which policy you should take at the end of the article! Let’s dive in!
Table of Contents
What Is Term Life Insurance?
Term life insurance is life insurance which you take out for a limited time period, such as 15 or 20 years, and which will pay out if you die within that time. You can use it to ensure your mortgage is repaid, or to make sure your family is looked after till your children have grown up.
How does term-life-insurance work?
During the term of the life insurance policy you pay a monthly premium for a given amount of cover. In return, the insurer will pay out the specified lump sum to your named beneficiaries if you die while the insurance is in force. If you want to be covered for life, you should check our guide about whole of life insurance.
There are two types of term life insurance :
- Level Term life insurance
- Decreasing term life insurance
We will see both of these life insurance policy in this guide, let’s start with level term life insurance.
What is Level term life insurance?
With level term life insurance, the amount of pay out remains the same over time. It will pay a lump sump if the policy holder die during the contract.
Level term life insurance is a good way to ensure that your family is covered if you die while your children are still young. You could, for instance, take out an insurance that would repay your mortgage and leave enough money to pay for the children’s university education.
What is decreasing term life insurance?
With decreasing term life insurance, the amount of payout on death declines over time. It has several uses, but one accounts for the vast majority of policies – it’s used to cover mortgage debt, and it’s often called ‘mortgage life insurance’. If you have a repayment mortgage, the amount that you owe falls every month as you repay a little more of the debt, so decreasing term insurance is useful as the sum insured also decreases in the same way.
As with any other term life insurance, you pay a monthly premium; in return, the insurer promises to pay out should you die during the period (‘term’) that you’re insured. The payout will decline gradually from 100% of the sum insured at the start of the term to 0% at the end.
What are the best term life insurance ?
Let’s find out the best term life insurance quotes, we compared level term life insurance and decreasing term life insurance so that you can have an idea of how much it cost.
Level term life insurance quotes
The best term life insurance for you might not be the same as for someone else. You might want to specify a larger or smaller sum insured, for a longer or shorter period. And of course, your age and state of health will have an impact on how much you pay in premiums.
We tracked down prices from trusted insurers for a 35 year old non-smoker wanting to insure £150,000 over a 20 year term :
|Insurer||Premium / month|
Decreasing term life insurance quotes
Obviously, the best decreasing term life insurance policy for you will depend on the amount you want to insure, and how long you want to insure it for, as well as your age and health. This table shows quotes for the same individual as in the preceding table – a 35 year old non-smoker – and the same sum and term insured (£150,000 over 20 years). You can see that the decreasing term insurance is considerably cheaper than the level term insurance, with the best quote coming in below £5 instead of above £7.
What are term life insurance rates?
Is it easy to find cheap term life insurance ? we will see how much cost level term life and decreasing term life.
Level term-life insurance rates
The cost of level term life insurance premiums depends on the length of the term for which you want to insure, on the sum insured, and on your age and state of health when you take out the policy.
For instance, a 25 year old taking out a 20 year £200,000 level term life insurance could expect to pay £7-12 a month, while a 45 year old would pay £25-50 a month. Smokers will generally pay towards the top of that range, as well anyone with minor health issues.
|25 years old||£5.67|
|35 years old||£12.00|
|45 years old||£18.63|
|55 years old||£46.56|
Decreasing term-life-insurance rates
How much you’ll pay for mortgage life cover depends on your age and health and the amount of your mortgage – but as a rough guide, a 25-35 year old wanting to cover £110,000 on a first home might expect to pay £10 or so a month.
You’ll pay more if you’re a smoker or if you have long term health issues. And obviously, if you have a bigger mortgage, you’ll need to scale up the insurance premiums too.
However, you can save yourself a lot of money by making sure you compare the best quotes for life insurance and mortgage protection.
How to find cheap term life insurance?
Finding cheap term life insurance can be tedious, that is why we created a comparator, you can compare all life insurance deals in a few seconds, without giving any personal informations.
What are the pros and cons of term-life insurance policy ?
The big pluses of level term insurance are that it’s cheap and gives you certainty, but it does have disadvantages too.
What are Level term life pros and cons?
- It’s cheap, compared to whole-of-life
- you can set the term that works for your particular circumstances
- you know exactly what lump sum will be paid out if the worst happens
- inflation could erode the value of the lump sum insured
- if your main aim is to pay off a mortgage, you may be paying too much – since the sum insured will stay the same, while you’ll have paid a lot of your mortgage off by half way through the term
- if no claim is made, your premiums are ‘lost’. There’s no chance to surrender the policy as there is with a whole-of-life insurance.
What are decreasing term life pros and cons?
One big plus of decreasing life insurance is that it’s cheaper than level term life insurance. But it has disadvantages too.
- It’s cheaper than level term insurance. That’s because the insurer will provide a lower level of cover as time goes on. Usually, decreasing term insurance will cost between 60% and 80% of an equivalent level term policy.
- If you have no dependents, decreasing term insurance will cover your mortgage at the lowest cost.
- There is no maturity value for the policy, and at the end of the term, you could be paying a high premium for very little cover.
- If you have a young family, a level term policy could make more sense – since you’ll want not just to pay off the mortgage, but also to leave a lump sum to help support your children till they’re old enough to look after themselves.
Term vs whole life insurance: what is the difference?
Have a look to this diagram, we can see that the main difference is that term life insurance is limited whereas whole life insurance is not.
Should I take level term life or decreasing life insurance?
This decision depends on your reasons for taking out life insurance. If you want to make sure your family is protected if the worst happens, level term is best – it will pay out the agreed sum even if you die just a week before the end of the term. On the other hand if you just want to make sure the mortgage, or your share of the mortgage, is paid off, decreasing life insurance will do the job, and will cost you less.