Life insurance.... Is there ANY benefit to having a decreasing policy?!

[Bellyrub1980]

I'm in the process of setting up life insurance and for the life of me can't understand why anyone would choose to have a decreasing term policy as apposed to a level term policy.

With the company im talking to, they can offer me a payout of £80,000 over the next 28 years for monthly payments of £6.32. This would be enough for my partner to cover my mortgage if I die. This amount will not decrease however, so if I die in 15 years he will be able to pay off my mortgage and have a nice little lump sum left over for him and my daughter.

However... The insurance company said I could choose to have a decreasing policy. Which means as my mortgage decreases the payout decreases. However, the monthly payments (which will be roughly the same) don't decrease!! So what is the benefit of this exactly?! Because as far as I can tell, it's paying the same amount each month for a gradually decreasing payout in the end!

Am I missing something here??

I think normally the monthly payments would be less for a decreasing term policy. They don't go down over time, but they would be less for the whole duration of the policy.

Have you tried asking the insurance company this one - it does sound odd ot me.

A decreasing policy is designed to cover a repayment mortgage, so that as you pay off the loan, you don't need as much life cover. It mean so the premiums are cheaper.

Means

If you had level cover for the same amount, your premiums would be a lot higher.

When we had our quotes the decreasing policy premiums were less. Have you just had the one quote from one company, or several?

It's like spreading the cost of your motor insurance over a year, but you spread the cost over say 25 years. Sorry to explain in 3 posts.

Thankyou for replying so quickly!

I've posed that question to the insurance company...

The monthly payments for the level term policy are £6.62. The monthly payments for the decreasing policy are £5.30.

So there isn't a huge difference....??

For the sake of £1.32 a month surely its a better deal to get the level term.... Unless I'm missing something? I'm very suspiscious of insurance companies!!!

dingit the quote I put in my OP was for the level term policy.

Doesn't seem wildly different. Do you smoke? That will make a big difference. And shop around a bit, like you would for any other insurance.

From the top of my head, ours is around that for about £100,000, we are non smokers, and relatively young when we took the policy out. We've nearly paid our mortgage now, so you've just reminded me I can cancel the policy

Nope I don't smoke or drink, never had any health issues at all.

Ive shopped around by using comparison sites and £6.62 was the cheapest. Although they're all roughly the same.

To save just £1.32 a month for a decreasing policy doesn't make a lot of sense to me. Is there a benefit or legal reason for having a decreasing policy that I'm missing??

My partner has a decreasing policy with a different company. He didn't shop around and like me is in perfect health.

He's paying a whopping £20 a month for £102,000 and that's a decreasing policy!!???? Why on earth???? Will be having words when he gets home!!

The only real legal reason tends to be in relation to what your mortgage agreement states ..... I.e. Is it a condition of your mortgage that you have life cover at a certain rate? If it is, then that's what you need to have.
If it doesn't, then you pick what works best for your circumstance.

The only other difference I can think of, is that with the decreasing sum one it'll eventually only pay out £20 (example) if you were to die in the last month of your mortgage, yes? However, the other one is it an indefinite period it covers (or is it only covering the next 28 years) I.e. Would it pay out the £80k if you die in 30 years?

Meant to say then, that if all else is equal I'd go for the £80k coverage for the whole period. Indeed that is what I've done.

Thank you for the quick replies. I shall phone my mortgage company and see what they say.

Term assurance only pays out if the Life Assured dies during the term. Nothing is payable at the end of the term if the Life Assured survives. That is why it is such a cheap form of life cover, as there is no investment element built in.

Ok thank you. I assumed that so happy with that arrangement.

Phoned the mortgage company (Halifax) and they had no idea how to answer my question so I can only assume that it doesn't matter what type of insurance I have, provided I have enough to cover the full amount.