Protecting Your Mortgage | Level vs Decreasing Life Insurance

Podcast Hosts:

Gemma – Host
Abdul – Insurance Manager and Expert

Introduction

Gemma:
Today we’re discussing protecting your mortgage and understanding the differences between level and decreasing term life insurance policies.
This will help you decide which policy is most suitable for your mortgage.

Q&A Discussion

Q1: What is Level Term Life Insurance?
Abdul:
Level term life insurance covers you for a fixed sum over a fixed period.
Example:
Coverage: £100,000
Term: 20 years
If a claim is made during this period, the payout is £100,000.
Premiums remain fixed unless you make changes to the policy.
Straightforward and predictable.

Q2: What is Decreasing Term Life Insurance?
Abdul:
Decreasing term insurance is similar to level term but the amount of cover reduces over time.
Usually taken out to protect a repayment mortgage, also known as mortgage protection insurance.
The cover reduces roughly in line with the mortgage balance over time.

Q3: Is Decreasing Term Insurance Cheaper?
Abdul:
Generally, yes. Since the insurer’s payout decreases over time, the premiums start lower.
Example:
Level term: £20/month
Decreasing term: a few pounds cheaper
Important: The premium does not decrease; it stays fixed while the coverage decreases.

Q4: Which Policy is Right for Me?
Abdul:
Depends on your needs and purpose:
Level Term Life Insurance
Ideal if you want to protect your family or cover expenses beyond just the mortgage.
Fixed payout regardless of how long the policy has been active.
Decreasing Term Life Insurance
Ideal if the main purpose is mortgage protection.
Premiums start cheaper and coverage reduces over time to match the mortgage balance.
Must review policy regularly, especially if refinancing or remortgaging, as changing interest rates may make coverage insufficient.

Q5: Does Level Term Cover a Full Mortgage?
Abdul:
Yes. If your mortgage term is 30 years, you pay the same premium and the policy will pay out the agreed amount if a claim occurs.
Only needs adjustments if the mortgage liability changes.

Q6: Are There Other Life Insurance Options?
Abdul:
Joint Life Cover: One policy covers two people.
Covers both mortgage holders equally.
Payout can be structured for first death or second death.
Often more convenient and sometimes cheaper than two individual policies, depending on your circumstances.

Q7: Why Speak to an Advisor About Insurance?
Abdul:
Insurance needs are tailored to each individual; no one-size-fits-all solution.
Advisors can:
Access a range of products
Compare costs accurately
Ensure coverage is sufficient for your mortgage and family needs

Closing Remarks

Gemma:
Insurance suitability varies; always consult an advisor if unsure.
WIS advisors, like Abdul, can help you find the right policy.
Reminder: A mortgage is secured against your home or property and may be repossessed if repayments are not maintained.