Decreasing vs level life insurance - is there really any benefit to decreasing?

Koliver

Hi all.

I'm looking for advice on my life insurance. I've had a decreasing policy with critical illness cover for four years, arranged by our mortgage broker.

I'm now looking to switch to level cover with critical illness, but our broker seems highly against it. She says that insurers tend to improve their policies all the time (aka increase the number of illnesses covered), and with a decreasing policy you would review it every time you reviewed your mortgage, so your policy would get better over your lifetime. I've noticed she gets quite a hefty bit of commission from selling the life insurance so I'm wondering if this has anything to do with it 🤔

On the other hand I'm of the opinion that I should take out level insurance for as much as I can for as long as I can whilst I'm young (26), with the benefit that I can hopefully get a fixed premium for the term.

I've Googled and all sorts to find out if what she said is true, and what the benefits of decreasing cover are other than being cheaper, but I'm struggling to find anything. Can anyone offer their thoughts?

Weighty1

Insurers DO typically improve their plans over time.

The main reason why I wouldn't recommend a level plan over a decreasing plan is the extra cost. 99% of people never claim on their plans, it's the whole premise of how insurance works so why pay extra for something which might not even be needed and is fairly unlikely to be claimed on?

If you need extra cover over and above the mortgage amount then arrange that cover specific to that need rather than taking 1 plan to try and cover a multitude of needs.

dunstonh

She says that insurers tend to improve their policies all the time (aka increase the number of illnesses covered

Yes and no. Whilst recent trends have been to improve, there have been periods in the past when it has gone the other way. So, its not a 100% rule.

I've noticed she gets quite a hefty bit of commission from selling the life insurance so I'm wondering if this has anything to do with it ��

The broker got paid at the start. Clawback periods are for 2-4 years. So, if yours was 4 years ago, then a) she is not getting any commission as its already had and b) there will be no clawback. Indeed, if you were to arrange a new one via her, she would get a new commission. So, the fact she is saying dont do it disproves commission as being the issue.

On the other hand I'm of the opinion that I should take out level insurance for as much as I can for as long as I can whilst I'm young (26), with the benefit that I can hopefully get a fixed premium for the term.

Your needs are going to change over time. New mortgage, new lenth of time, possibly family etc. So, you cover the need as it is now. Not what it may hypothetically be in the future.

Koliver

Thanks for the quick responses.

She was trying to push me into a new, more expensive policy which I didn't see any benefit to, which she would've got £600 commission from in the first year which is why I was dubious.

I've decided to continue with my existing policy, as weighty1 says most people hopefully don't need to claim on life insurance within the term so critical illness seems more important, and my existing policy has much better critical illness cover than other quotes I've received at a similar price.

"Your needs are going to change over time. New mortgage, new lenth of time, possibly family etc. So, you cover the need as it is now. Not what it may hypothetically be in the future." (sorry I can't do the fancy quoting!)

My thought with the level is that it would be much cheaper for me to purchase it at a fixed premium at this age, rather than wait 10 years to see how my circumstances change. If I was to take insurance out for a much larger sum than my mortgage and place it in trust, this would cover any future house moves and I'm assuming I could change who the trustees are should the need arise (eg kids, break ups etc)? I don't know, I'm still trying to get my head around it, but at least I know I have a policy in place in the meantime.

Askalaba

The only benefit of decreasing life insurance compared to level insurance is that decreasing cover is cheaper.


The obvious disadvantage is that the cover amount for decreasing life cover reduces over time.