Decreasing Term Life Insurance - Percentages

5t3ve

Hi Folks. I'm hoping someone here can help me understand the percentage rates that are used to calculate the amount payable should someone need to claim on a Decreasing Term Life Insurance policy.

Specifically...
1. (ignoring policy costs for the moment) is a lower or higher percentage rate generally considered better? I'm defining better as likely to pay out more at a given time and equally more likely to payout at least the outstanding mortgage debt.

I presume a higher percentage rate used for calculations effectively pays out more at a given time and offers better protection against mortgage rate rises in terms of ability to cover the outstanding mortgage debt.. Do I have this right?

Ta in advance.

Weighty1

Yes, you do have it right. Higher percentages are better.

5t3ve

Weighty1 wrote: »

Yes, you do have it right. Higher percentages are better.

Thanks Weighty1.

Does anyone else have any info that might help me understand this better?

Weighty1

L&G have a decreasing term calculator. Hopefully the link below will work. As the calculator shows, the higher the percentage the bigger the bigger the sum assured at any given point. That said, all decreasing term plans will reduce to £0 at the end so the difference becomes less and less marked as the end date approaches.

http://www.legalandgeneral.com/advisercentre/technical-centre/tools-calculators/decreasing-term/claim-calculator.html

Phil_H_MLIA(dip)_Cert_PFS

Are you looking at just life or also SI?
I ask as life insurance is almost the same from company to company - yes some have TI cover but otherwise fairly standard and as such you are likely perhaps to choose the lowest guaranteed rate. Be wary of artificially low reviewable rates.
If you are looking to include SI then (my) logic dictates that you look for the best rather than the cheapest.
If that is the case then you can opt for a DTA with a guarantee to cover the mortgage irrespective of interest rates.

5t3ve

Looking for just life for the moment.. thanks for the tip regarding avoiding low reviewable rates.

Thanks both for your help - you've answered my questions.

Weighty1

Phil_H_MLIA(dip)_Cert_PFS wrote: »

Are you looking at just life or also SI?
I ask as life insurance is almost the same from company to company - yes some have TI cover but otherwise fairly standard and as such you are likely perhaps to choose the lowest guaranteed rate. Be wary of artificially low reviewable rates.
If you are looking to include SI then (my) logic dictates that you look for the best rather than the cheapest.
If that is the case then you can opt for a DTA with a guarantee to cover the mortgage irrespective of interest rates.

The problem with that logic is that most providers don't offer a mortgage repayment guarantee. Based on the fact that the "average" interest rates would need to exceed that rate used by the insurer for most clients a rate of 10% max would be more than enough I'd suggest. Let's face it, most clients would have bigger things to worry about than the full mortgage balance being cleared on death/critical illness if mortgage rates exceeded 10% for an extended period of time.