Decreasing term vs level term life insurance

How each one works

Both are types of term life insurance, which pays a tax free lump sum only if you die within a set number of years. Unlike whole of life cover, which always pays out one day, a term policy pays nothing if you outlive it. Both usually include terminal illness cover and have premiums that stay fixed for the whole term.

The single difference is the payout. Decreasing term starts at a chosen amount and reduces each year, roughly in step with a repayment mortgage balance. Because the insurer is on the hook for less as time goes on, it is the cheaper option, and it is often sold as mortgage life insurance. Level term keeps the same payout from the first day to the last, so whenever you die within the term, your family receives the full amount.

The cost difference

For the same starting amount, decreasing term is cheaper, because the amount at risk falls each year. Recent averages put decreasing term at about 17 pounds a month and level term at about 25 pounds a month for 200,000 pounds of cover.1 Across the market, decreasing cover is typically 30 to 50 percent cheaper than level for the same starting sum.4 The averages above bear that out: at about 17 pounds against 25 pounds, decreasing comes in roughly a third less.1

One nuance is worth knowing. Comparison site data shows that the median price people actually pay for the two is closer than the like for like gap suggests, because buyers tend to choose different amounts and terms for each.2 So always compare the same cover, over the same term, to see the true difference. Our guide to how much life insurance costs goes into the detail.

Which is more popular

Despite costing more, level term is the more popular choice. Around 72 percent of life insurance sales through one large comparison site were level term policies.2 The reason is simple. Many people want cover that protects more than a shrinking mortgage, such as their family’s living costs, and they value a payout that never goes down.

When decreasing term fits best

Decreasing term is the natural fit when the thing you are protecting gets smaller over time. That mainly means a repayment mortgage, also called a capital and interest mortgage, where you chip away at the balance every month. As the debt falls, so does the cover you need, and decreasing term follows it down at a lower cost.

It also suits any other loan that reduces over time. If your main goal is simply to make sure a shrinking debt is cleared if you die, decreasing term does that job for the least money.

When level term fits best

Level term is the better fit when the need stays the same or could grow. Common examples are an interest only mortgage, where the balance never reduces, and family protection, where you want a fixed sum to replace income, cover childcare and living costs, or leave a set amount behind.

The payout holds its cash value for the whole term, which is the certainty people pay extra for. The one thing to keep in mind is inflation. A fixed 200,000 pounds is worth less in real terms after 25 years, so think about whether the amount will still be enough later on.

The differences side by side

Can you have both

Yes, and many people do. A common setup is decreasing term to cover the mortgage, plus a separate level term policy for the family’s wider needs, such as replacing income and covering everyday costs. There is no limit, so you can hold more than one policy at the same time. Both types also let you add critical illness cover if you want a payout on a serious diagnosis as well as on death.

A couple of things to watch

• Decreasing cover may fall faster than your mortgage. Insurers usually set the rate of decrease using an assumed interest rate of around 8 to 10 percent. If your mortgage rate is lower, the cover can drop a little faster than the balance, so check it would still clear the debt.
• Level cover loses value to inflation. The cash amount stays the same, but what it can buy slowly falls over a long term. Some insurers offer increasing cover that rises with inflation, for a higher premium.
• Cheaper is not always better value. The right test is whether the shape of the cover matches the need, not the headline price.

Common questions

Is decreasing or level term cheaper?

Decreasing term is cheaper for the same starting amount, often by 30 to 50 percent, because the payout and the insurer’s risk fall each year. Level term costs more because the payout never reduces.

Which is better for a mortgage?

It depends on the mortgage. Decreasing term suits a repayment mortgage, where the balance falls. Level term suits an interest only mortgage, where the balance stays the same until the end.

Does decreasing term track my exact mortgage balance?

Only roughly. The cover reduces at a fixed rate set by the insurer, usually based on an interest rate of around 8 to 10 percent, not your actual mortgage. It is worth checking the cover would still clear the balance.

Can I have both a decreasing and a level policy?

Yes. A common approach is decreasing term for the mortgage and a separate level term policy for family income and living costs. There is no limit on the number of policies you can hold.

Do both pay out if I outlive the term?

No. Both are term policies, so if you are still alive when the term ends, neither pays anything and the cover simply stops.

Which type is more popular?

Level term. Around 72 percent of life insurance sales through one large comparison site were level term, as many people want cover that protects more than just a shrinking mortgage.

Decreasing and level term in numbers

A summary of the figures behind this guide.

Surely analysis of the myTribe 2026 pricing survey, MoneySuperMarket life insurance statistics and ABI protection claims data.123

Deciding what is right for you

Do not start with the price. Start with what you are protecting. If it is a repayment mortgage or another debt that falls over time, decreasing term covers it for less. If it is a family, an interest only mortgage or a fixed sum you want to leave, level term holds its value and is worth the extra. Many people use both. Whichever you choose, compare the same cover across insurers to find the best price.

Cover, price and eligibility depend on your personal circumstances, including your age, health, occupation and smoker status, and on insurer terms. Surely is operated by PJG Financial Ltd, which is authorised and regulated by the Financial Conduct Authority, FRN 919697.