Known as decreasing term insurance, decreasing term assurance and also known as mortgage life insurance / assurance. It is typically set up to protect a reducing debt such as a repayment mortgage. As you are gradually paying off the debt borrowed on a repayment mortgage the life insurance policy sum assured will reduce in line with your repayments.
So for example if you borrowed £100,000 for 4 years repaid at £25,000 each year (assuming no interest is payable) then a decreasing life assurance policy set up to protect this would pay the following during the 4 years the policy is in force:
- £100,000 on death at the start of the policy
- £75,000 on death at the end of year 1
- £50,000 on death at the end of year 2
- £25,000 on death at the end of year 3
- and reducing to zero when the policy finishes at the end of year 4
This covers the reducing debt that you have with a repayment mortgage insuring that there is always enough to cover the outstanding loan balance. This is the most efficient way to protect a repayment mortgage and the cheapest form of protection for it.
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