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Decreasing term assurance

Also known as mortgage protection insurance, this section is aimed at explaining this type of cover and when it is appropriate to use it.

Decreasing term assurance or mortgage protection insurance is a life insurance contract where the cover reduces as time goes by.

If you have a repayment mortgage you will be aware that the size of the debt is reducing as you make your repayments each month. The amount the debt reduces in the early years is quite small but as time goes by that reduction increases. See example below:-

If you have a repayment mortgage as far as life cover is concerned all you want to do is ensure that the debt outstanding at death is repaid. If you make sure that your policy does just that you can benefit from reduced costs.

It is for this reason we have decreasing term assurance or mortgage protection insurance. This cover reduces at the same rate as the debt which means that if you die during the term of the debt the life insurance will pay out exactly what is needed to cover the outstanding debt.

For this reason the cost of cover is greatly reduced. As you get older it costs more and more to provide life cover as the risk of you dying increases with age. However uniquely in the case of mortgage protection insurance the life companies exposure is reducing as the cover is reducing in line with the size of the mortgage debt and it is this cost saving that is being passed onto you by way of cheaper premiums.

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