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Decreasing Term Assurance


What is it?

Decreasing Term or Mortgage Protection policies as they are often known, provide cover that matches the outstanding balance of your mortgage/loan and will pay a lump sum that can be used to pay off the remaining balance of your mortgage/loan in the event of death.

Premiums can be guaranteed throughout the term or reviewable at certain intervals, but should you survive the policy term, there will be no benefit. As this type of contract only provides cover in the event of death there is no surrender value, so if you stop paying the premiums at any time, your cover will cease.

Decreasing Term Assurance

Essentially, term assurance is the cheapest type of life cover and is normally used for the benefit of the life assureds’ family or business, but it does have limitations.

As it has a fixed term, there is no flexibility and you will be unable to increase cover or extend the term. Should your health have deteriorated during the term of the policy, you may be unable to obtain further life cover at the end of the term. Some policies allow you to increase the level of cover in certain specific circumstances under a guaranteed insurability option and this will be detailed in the individual product Key Features Document.

There is no investment element to the policy, and your sum assured will decrease throughout the policy term matching the outstanding balance of your mortgage (providing repayments have been maintained at the current level). Some products allow you to select the interest rate to match the rate of interest on the mortgage/loan whilst others have pre-set rates, it is important to review the cover if the rate of interest changes.

Premiums are based on your personal circumstances but the main areas for consideration by an insurer are your age and state of health. The older you are, the higher the premium will be. Similarly if you have or had a serious ailment the insurer may seek to charge you more or in some cases be unwilling to cover you at all. Higher levels of cover and longer policy terms all increase cost as will the fact that an individual smokes.

Eligibility

You must be aged 18 to take out a life assurance contract.

Taxation

The proceeds of the policy will be paid out free of income or capital gains tax.

Risk Considerations

There are a number of risk considerations that need to be taken into account. It is important that you are aware of these in relation to your particular circumstances.

  • Please note that at the end of the term selected, cover will lapse and no further benefit will become payable.
  • This contract is designed to provide you with a high level of cover at minimal cost and therefore, if you stop paying premiums your cover will cease and the policy will not acquire a surrender value.
  • Failure to disclose any requested or relevant information may adversely affect any future claim.

 

  • You may have to increase contributions to maintain your desired level of cover or reduce cover to maintain your chosen level of contribution.
  • The present tax free treatment of the policy benefits may change.
  • Depending on the interest rate of the mortgage/loan and the interest rate on the decreasing term plan, the policy benefits may be less than the outstanding debt in the event of a claim.