Decreasing or Level Term to cover mortgage and living expenses?

cristinakaren

Hi,
We're looking into level term and decreasing term options but am a little confused. We are about to start a repayment mortgage.

For my partner we're looking at covering the outstanding mortgage debt - £280k and then a further £420k to cover living costs etc if the worst happened. So £700k in total.

We've got quotes for level term. That makes sense. At any time within the period it would pay out £700k.

What about decreasing term? Can you use decreasing term to cover more than the mortgage amount? All of the terminology indicates a decreasing term is what we should be looking at because we are on a repayment mortgage. However, are you allowed to insure more than the mortgage amount using a decreasing term product?

Any help or guidance much appreciated....

Many thanks in advance...

ACG

I cant tell you which is best for you as that can only be done by an advisor who has done a factfind on you, however i can explain a bit and you can make a decision?

If you have a level term policy for the £700k, each month the part to cover the expenses would increase as the bit you would be using for the mortgage would decrease.
The other way of doing it would be a decreasing term policy to cover the mortgage and a seperate policy to cover the family protection element.

If you do 1 policy bare in mind that both portions will stop at the same time (when your mortgage ends), will your partners requirements for the extra money stop when the mortgage is paid off?
Other ways of doing it would be for 1 policy for the mortgage and then family income benefit - this is life insurance but a sum is paid monthly rather than in 1 lump sum - its usually cheaper to do it this way.

Only you can decide the best way of doing it unless you see an advisor, we can only give generic info and maybe some pointers on here.

cristinakaren

thanks for the pointers.

thinking I should speak to an advisor...

many thanks

dunstonh

decreasing term assurance can be used for any decreasing financial need. Its only in recent times that the mortgage tag has been used in marketing names.

It would not normally be logical to have an amount higher than the mortgage on a decreasing term assurance. It often not logical having a level term assurance on repayment mortgages. Although some people do. It is usually best to take out multiple policies or segments (some modern plans allow multiple segments to cover multiple needs allowing you to combine level term, decreasing term and family income benefit types of life assurance as well as some other types of insurance).