Protecting a mortgage and other debts
This might be the case if you have a repayment mortgage or other type of loan, where the amount you owe decreases every year because you are paying it back. For example, if you took out a £250,000 repayment mortgage over 25 years with an repayment rate of 3 per cent, the amount you owe would have dropped to around £153,000 by year 12.
So if you had taken out a decreasing-term policy to pay off your home loan in the event of your death, the amount needed would have decreased dramatically by year 12, making such a policy a valuable solution.
The same goes for families where high costs – for childcare, for example – are expected to reduce after the children start school, meaning that a lower payout might be suitable.
When it isn’t right
Decreasing-term insurance is not for those who want a guaranteed payment on death; for this you need a whole-of-life policy. And it’s not really the right type of cover if you want to pay off an interest-only mortgage where the amount you owe will remain constant over time.
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