Life Insurance: Level or Decreasing Term?

Life insurance provides your loved ones with a financial safety net designed to help them cope with the practicalities in the event of your death. If you have life cover and pass away during the length of your policy (known as the ‘term’), your insurer will pay your dependants a lump sum of money - but it can sometimes be confusing to know which is the best policy for your circumstances. 

There are a number of different types of life insurance, including term insurance and whole of life cover. Level and decreasing life insurance are both types of term insurance; read on to find out which might be the right option for you.

What is term life insurance?

Term life insurance covers you for a set timeframe - a typical policy length is between 10 and 25 years. You choose the policy term depending on how long you think your loved ones will need financial protection. For example, your term could coincide with the length of your mortgage repayments or provide a financial safeguard until your children reach adulthood. 

Term life insurance comes in the form of either ‘level term’ or ‘decreasing term’ life cover. 

What is level term life cover?

When you take out a level term policy, you agree on the amount of money your beneficiaries will receive if you pass away during the term. It is called ‘level term’ because the amount to be paid to your loved ones, in the event of your death, will stay the same - or level - for the duration of the policy. Your premiums during the term will usually remain unchanged too.

What is decreasing term life insurance?

With decreasing term life cover, the lump sum to be paid out to your family, should you die, decreases over time. This type of life insurance is often purchased to cover a specific type of debt, such as a repayment mortgage. Decreasing term life cover is also suitable if you believe your family’s financial needs will decrease over time. You will often find that premiums for decreasing term life cover are cheaper than those for a level term policy.

Why do I need life insurance?

Taking out life cover can provide some much-needed reassurance and financial stability when your family needs it most - especially if you have children or a large financial commitment, such as a mortgage. It’s worth taking a look at our guide on life insurance myths to see why life cover can be invaluable at one of the most difficult times in your life.

It’s a good idea to take out life insurance sooner rather than later, as, often, the earlier you take out cover, the cheaper the premiums are. But there are plenty of policies to suit each stage of your life, and life insurance for the over 50s remains a good investment if it hasn’t been a priority until now. 

Which life insurance policy is right for me?

This will very much depend on your personal circumstances, as it’s important to match your cover to the needs of your beneficiaries. It’s also a good idea to compare life insurance plans and quotes to help you find the right policy at the right price.

As well as term insurance, you may also want to look into other types of life insurance, such as whole of life insurance, which doesn’t stop at the end of a fixed term but covers you for your entire lifetime. Many people also take out additional protection policies alongside life insurance, such as critical illness cover and income protection. 

Thinking about your death is never easy, but making time to take stock and review your existing insurance policies can help you and your family feel reassured. You might also want to read our guide on how to talk to your family about death.