Decreasing Life Insurance

A plan designed to help protect a repayment mortgage. It pays out the amount of cover if the life assured dies or is diagnosed with a terminal illness during the term of the plan. The amount of cover decreases over the term of the plan.

Premiums are guaranteed.

Target market

Family

Where a decreasing lump sum is required to help provide financial support to a spouse, partner, registered civil partner or dependant in the event of death or becoming terminally ill, for example as the amount of cover decreases in line with a child aging and childcare costs reducing.

Mortgage

Where there is a need to protect a repayment mortgage with a policy that pays out the decreased lump sum of the policy in the event of death or terminal illness. 

Business

Where a lump sum is required to:

  • Cover a repayment business loan.
  • Purchase the shares owned by a director or partner.
  • Cover an interest only business loan. 

Suitable if customers

  • Want to take advice on the suitability of the product
  • Want the level of cover to decrease throughout the term of the policy.
  • Need a lump sum in the event of death or terminal illness and have dependants, and are not willing/able to self-insure or do not have funds elsewhere.
  • Have a business need to cover the loss of a key person, to provide finances to purchase shares of a director or partner in the event of their death, or to cover an interest only business loan.
  • Have medical conditions that do not prevent provisions of cover and are happy to be underwritten.         
  • Are UK resident and can afford relevant monthly premiums for term cover.
  • Want the choice of a decreasing rate or 7%, 8%, 9% or 10%.   

Unsuitable if customers

  • Wish to purchase direct without advice
  • Want their policy to remain level throughout the term of the plan (Life Insurance).
  • Want a product to pay a monthly benefit FPIP), or cover an interest only mortgage.
  • Want a product to pay a benefit if they are unable to work for a period of time due to accident or injury (IPB).
  • Do not have a business need to cover the loss of a key person, to provide finances to purchase shares of a director or partner in the event of their death, or to cover an interest only business loan.
  • Have health conditions that may result in cover not being issued.
  • Have no dependants and are willing to self-insure and have sufficient funds or cover elsewhere.
  • Require a non-underwritten journey.
  • Are unable to afford term cover and are not UK resident. 

Amount of Cover

  • No minimum sum assured. Driven by minimum premium.
  • No set maximum sum assured - subject to negotiation with re-insurers, except if Critical Illness Cover or Critical Illness Extra are chosen, when the maximum amount of cover limits will be:
    £3 million - if Specific Work Tasks definition is chosen under TPD, or
    £2 million - if Own Occupation definition is chosen under TPD.
  • The amount of cover decreases roughly in line with the way a repayment mortgage reduces during the policy term.

Term

  • The minimum term allowed is 5 years.
  • The maximum term allowed is 50 years (or 40 years if Critical Illness Cover or Critical Illness Extra are chosen).

Age restrictions

  • The minimum age to take out a policy is 18. It is possible for a life of another policy to be taken out on a 17 year by an adult with insurable interest. This policy can then be placed in an Absolute trust with the 17 year as the beneficiary.
  • The minimum age at the end of the policy is 29.
  • The maximum age for buying a policy is 74 (or 64 if Critical Illness Cover or Critical Illness Extra are chosen).
  • The policy must by their 90th birthday (or 70th birthday if Critical Illness Cover or Critical Illness Extra are chosen).

Premiums

  • Guaranteed
  • Choice of guaranteed or reviewable premiums if Life Insurance with Critical Illness Cover or Critical Illness Extra is chosen.
  • Payable monthly or annually by Direct Debit.

Benefits automatically included at no extra cost

Other information

  • For joint life policies, benefit is paid on the first death.
  • Policies can be placed in trust.