Term life insurance: Level vs decreasing cover

When it comes to term life insurance, there are several options to choose from. So no matter your situation or desired cover, you have some flexibility. Level term or decreasing life insurance are two of the main types of term cover, but which is best for you?

In this article, we answer questions, such as:

What is term life insurance?

What is level term life insurance?

With level term life insurance, the cost of premiums and payout amount remain fixed during the policy term. This can provide comfort, knowing your premiums won't rise as you get older or develop health conditions. At the same time, your family/loved ones will receive the exact amount you agreed to when you first took out the policy.

What is decreasing term life insurance?

Decreasing term life insurance is another type of policy where the payout amount decreases over time. This policy is often used for covering specific debts that decrease over time, such as a repayment mortgage. Like level term, the premium payments typically remain the same throughout the policy.

The difference is that with decreasing term cover, the payout lowers overtime, so that at the end of the term, you no longer need cover for that loan/debt.

Please note: The insurance products offered by Cavendish Online have no cash-in value at any time. If you stop paying your premiums your cover will stop, your policy will end, and you will receive no benefit. If you have not claimed before the end of your chosen policy term, the policy will end, and no benefit will be paid.

If you are facing financial difficulty, please contact your insurer before cancelling your policy or letting it lapse. They may have options available that means you don't have to lose the plan.

Why would I need level term cover?

Term cover may be ideal for you if you wish to make sure your family/loved ones have protection for a certain amount of time. For example, you could choose to take out a 25-year policy to protect your children until they have grown up or moved out of the house.

Another example could be if you have a spouse who relies on your income to cover certain expenses. In this case, a level term policy could provide peace of mind knowing that your family/loved ones will be financially secure in the event of your passing.

Why would I need decreasing term cover?

Decreasing term cover may be more suitable if you have specific debts that decrease over time, like a mortgage. Say your mortgage length is 30 years, you could take out a 30 years to ensure that your family/loved ones can continue to make mortgage payments if you were to pass away before it can be paid off.

If you don't have a mortgage or significant loan to cover, then you may be better suited to a level term policy. Another option is increasing term life insurance - with this policy, the payout amount increases over time to keep up with inflation. Unlike the other levels of cover, the premiums are not fixed and will rise throughout the policy.

How much will my policy cost?

Insurers primarily factor in a range of information when calculating the cost of your policy. This typically includes:

• Age - the younger you are, the cheaper the policy may be

• Health - you may pay more in premiums if you have health issues or pre-existing conditions

• Length of the policy

• Level of cover (i.e level, decreasing, increasing, whole)

• Amount of cover

For cheaper premiums, you may wish to buy cover when you are younger as opposed to when you're older. But that doesn't necessarily mean it's too late to get cover - it just means that it could be more expensive.

You can use our free online comparison tool to compare quotes in minutes. When you buy with one of our advisers, we’ll automatically place you on an annual review scheme. We’ll get in touch every year to check that your policy is still adequate, and look into alternatives if it’s not. Contact us today for more information and advice.