Decreasing Term premiums

davidncohen

Probably a dumb question but why, when the benefit on a decreasing term policy reduces over the term of the policy, say to cover the cost of a mortgage, don't the premiums also reduce in line with the benefit.

Thanks in advance.

Regards,

David

dunstonh

Premiums are lower to take into the account the decreasing sum assured. Doing it the way you suggest would have premiums more than double what they are start.

Yearly renewable term assurances do exist which do take into account reducing sum assureds but then they also take into account the age increase every year as well. Safe to say that they are not very popular.

Stonk

They just don't. Providers could no doubt structure their pricing like that, but you would find yourself paying more for the first part of the term. It's swings and roundabouts really - they're gonna take the same amount of profit out of you either way. I think you're probably better off with a level premium, as it makes the policy that bit simpler and cheaper to administer.