The basic difference between the two is:
- A decreasing term policy means the payouts decrease over time and the longer the policy term, the smaller the premiums become.
- A level term assurance policy, the premiums will be fixed for the period of the cover.
- A decreasing term policy costs less than a level term assurance policy.
A decreasing term policy is usually something a person would go in for when he has mortgage payments to be made and these payments decrease over time as the amount you have paid back keeps increasing. If the person who has the policy dies, the mortgage payments are made and the family is not left in the lurch. This is a much more affordable option so people would look at this in case of mortgage payments that might need to be paid in the event of death. What you will need to do is to take it for the period of your mortgage so in case anything happens, your mortgage will be paid up to the last payment. If you do take a decreasing term life insurance and you feel that it will not cover the time period of payments that need to be made, you can always take another policy which will cover your needs. In a decreasing term policy, when the amount to be paid reaches Nil, the policy will come to an end.
In level term assurance, if the person who takes the policy dies within the policy period, the dependent will be paid a fixed sum. The payment from this policy will not attract any tax – whether income or capital gains. However, this amount will only be paid if the policy holder were to die during the period that the policy is valid. You need to look at the number of years you would like this policy to be valid for when you go in for it. In some cases, those who are paying interest-only mortgages take level term assurance policies which can pay off the rest of the mortgage and leave something over as a nest egg in case of death.
It is possible to take both policies at the same time so that the decreasing term policy can be linked to the number of years the mortgage is due and the level term assurance will also be for the same amount of time. In case you were to die during this period, your family will not have to worry about mortgage payments and they will also be assured of a guaranteed sum to live on.