What Is the Difference Between Level and Decreasing Term Life Insurance?
Both are types of term life insurance, they pay out a lump sum if you die within the agreed policy term. The difference is in how the payout amount changes over time.
With level term, the payout stays the same throughout the policy. If you insure yourself for £250,000 over 25 years, your beneficiaries receive £250,000 whether you die in year one or year twenty-four.
With decreasing term, the payout reduces over the policy term, typically following a curve that broadly mirrors the outstanding balance on a repayment mortgage. By the end of the term, the payout may be close to zero.
How Much Cheaper Is Decreasing Term?
Decreasing term is typically 20–40% cheaper than equivalent level term cover for the same initial sum assured and term. This is because the insurer's maximum liability reduces over time. For a 35-year-old non-smoker, the difference might be £5–£10 per month on a typical mortgage protection policy, meaningful over a 25-year term.
When Level Term Is the Better Choice
- You want to leave a fixed legacy for your family regardless of when you die
- You have an interest-only mortgage (the debt does not reduce over time)
- You want cover that extends beyond just the mortgage, income replacement, childcare costs, or education funding
- Your financial obligations are not linked to a specific reducing debt
- You are a business owner protecting a fixed-value liability
When Decreasing Term Is the Better Choice
- Your primary goal is protecting a capital repayment mortgage
- You want the most affordable option and the mortgage is your biggest financial exposure
- You are comfortable that the reducing cover mirrors your actual reducing liability
- You have other savings or assets that would support your family beyond the mortgage
Can I Have Both?
Yes, and many families do. A decreasing term policy to cover the mortgage, plus a smaller level term policy to provide a cash lump sum for the family if you die, is a common and sensible combination. Our advisers will model both options and show you the combined cost and coverage, so you can make an informed decision.
Joint vs Single Policies
Both level and decreasing term policies can be taken out as joint policies (covering two lives) or separate single policies. A joint policy is slightly cheaper, but it only pays out once, on the first death. Two single policies are more expensive but pay out independently, meaning the surviving partner remains covered after the first claim. For couples with dependants, two single policies generally offer better value despite the higher combined premium.
Frequently Asked Questions
Does decreasing term always match my mortgage balance exactly?
Not exactly, decreasing term policies use a standard interest rate to calculate the reduction curve, which may not perfectly match your mortgage balance if your rate differs significantly. However, the alignment is close enough for most repayment mortgages to provide appropriate cover throughout the term. Your adviser will check this when recommending a policy.
What happens if I overpay my mortgage and pay it off early?
The policy continues until the original end date regardless of when you pay off the mortgage. Any remaining cover can be useful, for example, it still pays out if you die before the policy expires, even if there is no mortgage to cover. You can also surrender the policy, though this has no cash value on most term policies.
Tanweer Hussain is the editor at TopQuote, an independent life insurance broker and appointed representative of The Openwork Partnership with over 20 years of experience. He oversees the accuracy of all published content, including the factual and regulatory detail that matters most on claims-related topics. All content on this page has been reviewed for FCA compliance.