Life Insurance: Decreasing Term Assurance Calculation?

groovedolphin

I've acquired a few quotes for life insurance that look promising. I'm minded to go for a decreasing cover policy, because the primary purpose of the payout if I die will be to pay off the mortgage.

Now the most favourable quote, for £130,000 over a 12 year term comes with the following advice:

"The assumed mortgage interest rate used for calculations connected with this cover is 7.00%."

What I want to know is - I assume it doesn't simply mean that the potential payout will decrease by 7% every year - is how I can calculate how much exactly would be paid after one year, after two, after three (etc).

How can I calculate this?

Thanks for any help.

OshayAway

7% is low. The higher the better, most are 10% or 12%. For a close indication of the rate of decrease, google the term "amortisation calculator"

groovedolphin

Thanks for the reply. I found a few amortisation calculators, but I'm afraid I don't understand how the input fields relate to the problem at hand.

Does the payout simply decrease by 7% every year?

weighty1_2

groovedolphin wrote: »

Thanks for the reply. I found a few amortisation calculators, but I'm afraid I don't understand how the input fields relate to the problem at hand.

Does the payout simply decrease by 7% every year?

No, it doesn't decrease by 7% each year. The provider decreases the cover in the same way that your mortgage would decrease if you are paying 7% as an interest rate.

Basically, it becomes an increasingly steep curve as the term nears expiry, just like a mortgage consists of mainly interest payments at the start with more and more capital element being repaid as the term continues.

As OshayAway states, 7% is low and doesn't give much margin to ensure the whole mortgage will be repaid is interest rates ever skyrocket as they have on occasion in the past.

That rate makes me automatically think "PruProtect Essentials" plan. This is a plan which is very basic and has certain Insurability Options removed and therefore can't be changed in the future without further underwriting. It may be worthwhile considering plans which don't remove these features to reduce the cost.

groovedolphin

Thanks again for the reply - useful information.

But does anyone out there know how to calculate the actual figures involved? That's what I'm really after.