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
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
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.