What is decreasing term life insurance?

Decreasing insurance is a type of term insurance that’s designed to run alongside a repayment mortgage. The amount it pays out gradually reduces over time, just like the outstanding balance on your mortgage.

If you pass away during the policy term, it pays out a lump sum that can be used to pay off what’s left of your mortgage – helping your loved ones stay in their home.

Because the amount of cover (known as the ‘sum assured’) reduces over time, decreasing life insurance is usually cheaper than other types of cover. It’s a practical, cost-effective way to make sure your biggest financial commitment is taken care of if something happens to you.

Why choose decreasing term insurance?

If you have a repayment mortgage, decreasing life insurance can be a smart, affordable way to protect it. It’s designed so the payout reduces in line with your mortgage balance, meaning you’re never paying for more cover than you need.

That makes it ideal for homeowners who want protection but also want to keep costs low. You get peace of mind knowing your loved ones wouldn’t be left struggling with mortgage payments, without the price tag of more comprehensive life cover.

It’s worth knowing that the payout is only guaranteed if you pass away during the term, and the amount paid out will reduce over time. That’s why it’s best suited for covering a specific debt like a mortgage, rather than providing general financial support.

Reasons to choose decreasing insurance:

  • Mortgage protection: Helps your family pay off the mortgage if you pass away.

  • Lower cost: Often the most affordable form of life cover.

  • Simple and straightforward: No frills – just focused financial protection.

  • Fixed term: You choose the policy length based on your mortgage.

What happens when the policy pays out?

When an insurance policy pays out, where the money goes depends on the type of policy you have and who it's set up to benefit.

If you take out a joint life policy, the payout usually goes to the surviving policyholder when the first person dies. There’s no second payout when the other person dies. So in the case of a decreasing term policy for mortgage cover, it would mean that they have the money they need to clear the outstanding mortgage balance.

However, there are other types of joint policies:

  • ‘Dual life’ policies are available that pay out when the first person dies, but life cover still stays in place for the surviving partner.

  • There are also joint policies that pay only on ‘second death’ although these tend to be used for inheritance tax planning.

With a single life policy, the payout typically goes to your estate, which can delay things a little due to probate. However, you can name a specific beneficiary or have the policy written in trust to potentially speed things up and have more control over who receives the money.

What does decreasing insurance cover?

Typically covered

This type of cover is specifically designed to protect a repayment mortgage. As long as you keep paying your premiums, and you pass away during the term, your insurer will pay out an amount that should match your outstanding mortgage balance at that time.

Some policies also come with standard or optional extras, including:

Terminal illness cover: Typically pays out early if you’re diagnosed with a condition that’s expected to be fatal within a certain time (e.g. 12 months).

Critical illness cover: Pays out if you are diagnosed with a serious illness covered by the policy.

What isn’t covered?

While term life insurance offers valuable protection, there are a few situations where a claim may not be paid:

  • Missed payments: If you stop paying your premiums, your cover could end.

  • Suicide: Many policies exclude death by suicide within the first 12 months.

  • Fraud or non-disclosure: If you aren’t honest and accurate when applying, the insurer could refuse to pay out.

  • Excluded health conditions: Some policies may include exclusions based on your medical history, for example if you have a pre-existing condition.

  • Outliving your policy: If you survive the policy term, the cover ends and there’s no payout.

Other events may not be covered, such as death due to war or participation in extreme sports. Please see each policy’s exclusions and limitations: always read the small print to make sure you understand the terms and conditions.

How much does decreasing term insurance cost?

One of the big benefits of decreasing life insurance is how cost-effective it can be. It’s usually one of the cheapest forms of life insurance because the amount insured reduces over time, meaning the insurer’s risk goes down too.

Your premium will still depend on a few key factors:

  • Your age: The younger you are when you take out a policy, the cheaper your premiums will usually be.

  • Your health: Existing health conditions typically mean premiums are higher.

  • Your lifestyle: Lifestyle choices such as smoking can push premiums up.

  • Length of term: A longer policy term often means higher premiums.

  • Your occupation: Some occupations make life insurance more expensive.

  • The ‘sum assured’ (typically matches the size of your mortgage): A policy that pays out £250,000 will cost more than one for £100,000.

  • Added benefits: Adding benefits such as critical illness cover will typically increase the premium.

  • Single vs joint life: A joint policy is usually cheaper than taking out two single policies (but remember that it will typically pay out just once, so it offers less protection than two separate policies).

You may find your own quotes come in cheaper or more expensive than average premiums. The best way to find out how much cover would cost for you is to compare quotes from leading insurance companies.

How to keep costs down

Decreasing insurance can be one of the most affordable types of life cover – and there are ways to make it even more cost-effective:

Start as early as you can: The younger you are when you take out a policy, the lower your premiums are likely to be.

Choose the right term and level of cover: If you are taking out a policy to cover your mortgage, you just need to align it with your mortgage size and term.

Be healthy: Insurers typically offer lower premiums to people who maintain a healthy lifestyle. Stopping smoking, eating well and managing any chronic health conditions may trim pounds off your premiums.

Consider a joint policy: A joint life insurance policy is often cheaper than taking out two separate policies – but coverage ends after the first payout.

Look at different premium options: A fixed or guaranteed premium policy might be better for budgeting and long-term cost control than a reviewable premium policy where premiums can increase.

Review your cover: If your life circumstances change you might not need as much cover. You may be able to amend your policy, or cancel it and take out a cheaper one.

Shop around and compare quotes: Each insurer has its own pricing model, so it’s essential to compare quotes before committing to a policy. Also, some providers offer special deals, like free terminal illness cover. Don’t settle for the first quote you receive; it’s always worth exploring your options.

By making a few smart choices, you can reduce your premiums without compromising on the protection you need.

Things to consider

Decreasing life insurance is a great option for many repayment mortgage-holders, but it’s not the right fit for everyone. Here are some important things to keep in mind:

Only suitable for repayment mortgages: If you have an interest-only mortgage, a level term insurance policy might better meet your needs.

It only covers a set period: If you live beyond the policy term, there's no payout and no return on the premiums paid. You may prefer whole life insurance if you want cover for your entire life.

No cash value: Unlike some whole life policies, decreasing cover doesn’t build up savings or investment value.

Missed payments can lead to cancellation: If you miss a premium payment, your cover may end. Some policies offer a grace period, but if premiums aren’t paid, the insurer might refuse to pay out or cancel the policy entirely.

Insurers don’t always pay out: There are situations where the insurer might not pay out. These include if you provide incorrect or misleading information during your application, and if death occurs during the exclusion period for specific circumstances (like suicide within the first 12 months).

If you’re unsure about whether decreasing insurance is right for you, seeking advice from a qualified financial adviser can help ensure you’re making the right decision.

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Page updated on 6th November 2025, Reviewed by Richard Groom