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Decreasing life insurance (sometimes known as mortgage life insurance)

An option for those buying term life insurance is to have the potential payout decrease each year.

This is often used with repayment mortgages where the mortgage balance outstanding reduces each year. 

One consideration for people taking out Term Assurance to cover a repayment mortgage is that, as an example, you could take out a 25-year life insurance policy to cover £200,000 (the amount of your initial mortgage borrowing).

However, after say 10 years for example, the mortgage is likely to have shrunk considerably so you could find yourself “over-insured” and paying more than is necessary in premiums as a result.

That said, it would also mean a “surplus” to any beneficiaries so this needs careful consideration.

As you would expect premiums for decreasing life insurance would often be lower than “standard” term insurance.

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