Decreasing Term vs. Level Term Life Insurance: Which is Best for Your Mortgage?

A guide for new homeowners explaining why your mortgage broker’s default life insurance quote might not be the best value option in 2026

Congratulations on securing your mortgage and getting the keys to your new home. It’s a landmark moment. Amidst the excitement of choosing paint colours and furniture, you’ll be faced with one more crucial decision: how to protect your home and family should the worst happen.

This is where mortgage life insurance comes in.

Your mortgage adviser or bank has likely already presented you with a life insurance quote. It seems convenient, a simple box to tick on your home-buying checklist. But here lies a common and potentially costly mistake many new homeowners make.

Accepting the default quote without shopping around can mean you pay more for less suitable cover.

As specialist protection advisers, we see this every day. The quote provided by a mortgage broker is often from a limited panel of insurers, not the whole market. Their primary focus is the mortgage itself, not a deep dive into your family's unique financial protection needs.

This definitive guide for 2026 will empower you to make an informed choice. We'll demystify the two main types of mortgage life insurance—Decreasing Term and Level Term—and explain why a quick trip to an independent broker could save you thousands and secure your family's future more effectively.

What is Mortgage Life Insurance and Why is it Crucial?

First, let's be clear: 'Mortgage Life Insurance' isn't a standalone product. It's a term used to describe a life insurance policy taken out for the specific purpose of paying off a mortgage debt upon the policyholder's death.

Is life insurance a legal requirement to get a mortgage in the UK?

No, it is not a legal requirement. However, most lenders will strongly recommend you have it. It’s a matter of profound financial responsibility. Without it, your loved ones could face the devastating prospect of losing their home while grieving.

Imagine this scenario:

• Illustrative estimate: A couple buys a home with a £300,000 mortgage.
• Tragically, one partner passes away unexpectedly.
• Illustrative estimate: The surviving partner's sole income is not enough to cover the £1,500 monthly mortgage payment, let alone other household bills.
• Without a life insurance payout to clear the debt, they could face a forced sale or, in the worst-case scenario, repossession by the lender.

Life insurance acts as a financial safety net, ensuring the mortgage debt is cleared and your family can remain in their home, secure and debt-free. The two most common ways to achieve this are with Decreasing Term and Level Term insurance.

Deep Dive: Decreasing Term Life Insurance Explained

Decreasing Term Assurance (DTA), also known as mortgage life insurance, is the most common type of policy sold specifically to cover a repayment mortgage.

What is it? A Decreasing Term policy is a type of life insurance where the potential payout amount (the 'sum assured') reduces over the course of the policy term.

How does it work? It's designed to mirror the outstanding balance of a capital and interest repayment mortgage. As you pay off your mortgage each month, the amount you owe decreases, and so does the life insurance cover.

• Your premium remains fixed throughout the term.
• The payout amount reduces roughly in line with your mortgage debt.
• If you die during the term, the policy pays out the current sum assured, which should be sufficient to clear the remaining mortgage.

Insurers typically set the policy's rate of decrease at a level higher than your mortgage interest rate (e.g., 8-10%). This creates a small buffer, ensuring that even if your mortgage interest rate rises, the insurance payout should still be enough to cover the debt.

Who is it best suited for? Decreasing Term insurance is ideal for:

• Homeowners with a capital and interest repayment mortgage.
• Budget-conscious buyers, as it's the most affordable type of life insurance.
• Individuals or couples whose primary goal is solely to ensure the mortgage is paid off, with no need for an additional lump sum.

Real-Life Scenario: Alex and Ben

Alex and Ben, both 30, have just bought their first flat in Manchester with a £250,000 repayment mortgage over a 30-year term. Their main priority is making sure the mortgage is covered if one of them dies. They have no children yet and limited surplus income. (illustrative estimate)

They opt for a £250,000 joint Decreasing Term policy over 30 years. Their premium is a low, manageable monthly cost. If one of them were to die in year 5, the policy might pay out around £235,000—enough to clear the remaining mortgage debt. If a claim occurred in year 25, the payout would be much lower, perhaps £55,000, but again, enough to clear the outstanding loan. (illustrative estimate)

Deep Dive: Level Term Life Insurance Explained

Level Term Assurance (LTA) is the simplest and often most comprehensive form of life insurance.

What is it? A Level Term policy is a type of life insurance where the payout amount (the 'sum assured') remains fixed for the entire duration of the policy.

How does it work? The principle is straightforward. If you take out a £300,000 policy for a 25-year term, it will pay out £300,000 whether you die in year 1, year 15, or year 25. Once the term ends, the cover ceases. (illustrative estimate)

• Your premium remains fixed throughout the term (if you choose guaranteed premiums).
• The payout amount is level and does not decrease.
• It provides a guaranteed lump sum to your beneficiaries if you die within the chosen period.

Who is it best suited for? Level Term insurance is a powerful tool for:

• Homeowners with an interest-only mortgage, where the capital debt doesn't reduce until the very end.
• Families with children who want to provide a financial cushion on top of clearing the mortgage. This surplus can cover childcare, education costs, and replace the lost income of the deceased partner.
• Anyone who wants to leave a guaranteed legacy to their loved ones for any purpose.
• Business owners wanting to protect their family from business-related debts.

Real-Life Scenario: Chloe and David

Chloe (38) and David (40) have a £350,000 repayment mortgage on their family home in Bristol. They have two young children, aged 4 and 6. Their priority is not just to clear the mortgage but also to ensure the surviving partner has funds to raise the children without financial struggle. (illustrative estimate)

They decide against a simple decreasing term policy. Instead, they opt for a £500,000 joint Level Term policy over 25 years, timed to end when their youngest child will be financially independent. (illustrative estimate)

If one of them were to pass away, the £500,000 payout would: (illustrative estimate)

1. Illustrative estimate: Clear the entire £350,000 mortgage.
2. Illustrative estimate: Leave a £150,000 tax-free lump sum for the surviving partner to invest, replace lost income, or use for future school fees.

This provides far greater peace of mind than a policy that only covers the debt.

Decreasing vs. Level Term for Your Mortgage: A Head-to-Head Comparison

Choosing between the two depends entirely on your personal circumstances, budget, and what you want the insurance to achieve.

Cost Analysis: A Practical Example

Let's look at an illustrative quote for a 35-year-old, non-smoking male seeking £300,000 of cover over a 25-year term.

• Decreasing Term Insurance (illustrative): Approximately £12 per month.
• Level Term Insurance (illustrative): Approximately £22 per month.

Note: These are illustrative figures for January 2026. Your actual premium will depend on your individual circumstances, including age, health, smoking status, and the insurer selected.

While the Level Term policy is almost double the price, the difference is just £10 per month. For the price of a couple of coffees, you secure a payout that doesn't shrink, providing a significant extra benefit for your family in the later years of the policy. This is the trade-off you need to consider. (illustrative estimate)

The Elephant in the Room: Why Your Mortgage Broker's Quote Might Not Be Best

Now, back to that convenient quote from your mortgage adviser. Why should you be cautious?

1. The Convenience Trap: In the whirlwind of buying a home, it's easy to say "yes" to the first offer. Brokers know this. But convenience can come at a hidden price. What seems easy now might be a poor-value decision that lasts for 25 years.

2. Limited Panel of Insurers: This is the single biggest issue. Many mortgage networks and banks have agreements with a small, restricted panel of insurance providers. Some may only offer products from a single company. This means you are not seeing the full picture. A whole-of-market protection broker, like WeCovr, compares plans from all major UK insurers, ensuring you get access to the most competitive and suitable options.

3. Potential for Higher Premiums: A lack of competition invariably leads to higher prices. The insurer offered might not be the most competitive for someone of your age, health, or occupation. We frequently find we can secure clients the same or better cover for 20-40% less than the quote they received from their bank.

4. Focus on the Mortgage Only: A mortgage adviser's expertise and primary duty is to secure your property loan. Protection is an add-on. They may not have the time or specialist training to conduct a thorough analysis of your wider financial situation, your family's future needs, or discuss crucial elements like trust planning in detail. A specialist protection adviser's only job is to get this part right.

In the digitally empowered market of 2026, you have direct access to tools and experts who can scan the entire market in minutes. Settling for a tied, limited offer is an outdated approach that can short-change your family.

Beyond the Basics: Supercharging Your Mortgage Protection

Protecting your mortgage is the foundation, but a robust financial plan considers more than just death. Here are other key elements a specialist adviser will discuss with you.

Adding Critical Illness Cover (CIC)

What if you don't die, but suffer a serious illness like cancer, a heart attack, or a stroke? You could be unable to work for months or even years, putting your ability to pay the mortgage under severe threat.

• What it is: Critical Illness Cover pays out a tax-free lump sum on the diagnosis of a specified serious medical condition.
• The Risk is Real: You are far more likely to suffer a critical illness before age 65 than you are to die.
• How it works: It can be added to your life insurance policy. The lump sum can be used for anything – to clear the mortgage, adapt your home, pay for private treatment, or cover daily living costs while you recover. It provides financial breathing space at a time of immense personal stress.

Joint Life vs. Two Single Policies

For couples, a 'joint life, first death' policy is common. It covers two people but only pays out once—on the first death. After that, the policy ends, leaving the survivor without any life cover.

An often-overlooked alternative is taking out two separate single policies.

• The Cost: Two single policies are usually only slightly more expensive than one joint policy.
• The Benefit: This provides twice the protection. If one partner dies, their policy pays out. The surviving partner still retains their own policy. If they were to also pass away later, a second payout would be made, providing a substantial inheritance for children or other beneficiaries. For a small extra monthly cost, this doubles the potential legacy for your family.

The Power of Writing Your Policy in Trust

This is one of the most important yet frequently neglected aspects of life insurance. Placing your policy 'in trust' is a simple legal step that has two massive benefits:

1. Avoids Probate: A policy in trust is paid directly to your chosen beneficiaries (the 'trustees'). It does not form part of your legal estate. This means the money can be paid out in a matter of weeks, rather than getting stuck in the probate process, which can take many months or even years. Your family gets the money when they need it most.
2. Mitigates Inheritance Tax (IHT): For larger estates, the life insurance payout could be liable for 40% Inheritance Tax. By placing the policy in trust, the payout typically falls outside your estate for IHT calculations, ensuring your family receives 100% of the sum assured.

Most insurers provide trust forms for free, and a good adviser will guide you through completing them as part of their service.

What About Income Protection? The Overlooked Guardian of Your Mortgage

While life insurance protects against death and critical illness against specific conditions, Income Protection (IP) protects your most valuable asset: your ability to earn an income.

Income Protection is a policy that pays you a regular, tax-free monthly income if you are unable to work due to any illness or injury.

It's designed to replace a significant portion of your lost earnings, allowing you to continue paying your mortgage, bills, and living expenses until you can return to work.

Consider this:

• Illustrative estimate: Statutory Sick Pay (SSP) in the UK is just £116.75 per week (as of the 2024/25 tax year). For most people, this is not enough to cover even their mortgage payment.
• An IP policy can cover up to 60-70% of your gross salary.
• You choose a 'deferred period' (e.g., 4, 8, 13, 26, or 52 weeks). This is the waiting period before the policy starts paying out, which you can align with any sick pay you receive from your employer.

For a self-employed person with no employer sick pay, Income Protection is arguably the single most important financial protection policy they can own.

Special Considerations for Business Owners and the Self-Employed

If you run your own business or work for yourself, your protection needs are unique. The financial health of your family is often directly intertwined with the health of your business.

• Self-Employed/Freelancers: As mentioned, Income Protection is non-negotiable. Without an employer safety net, an inability to work means an immediate stop to all income.
• Company Directors: You have access to highly tax-efficient ways of arranging protection through your limited company.
  • Relevant Life Insurance: This is a company-paid life insurance policy for an employee or director. The premiums are typically treated as an allowable business expense, and it doesn't count towards your personal pension allowance. It's a tax-efficient way to provide death-in-service benefits for yourself and key staff.
  • Executive Income Protection: Similar to personal IP, but the policy is owned and paid for by your business. Again, the premiums are usually a tax-deductible business expense, making it a cost-effective way to protect your income.

Understanding Premiums, Underwriting, and the Application Process

When you apply for any protection policy, insurers will assess your 'risk' through a process called underwriting.

• Key Factors: They look at your age, medical history, lifestyle (smoking and alcohol consumption), occupation, and any hazardous hobbies.
• Honesty is Essential: You must be completely truthful on your application. Non-disclosure of a material fact (like a pre-existing medical condition or that you smoke) can give the insurer grounds to void the policy and refuse a claim.
• Premium Types: You will usually be offered two types of premiums:
  • Guaranteed Premiums: These are fixed for the life of the policy. You will pay the same amount in year 25 as you do in year 1. This is highly recommended for long-term mortgage protection.
  • Reviewable Premiums: These may start cheaper but are reviewed by the insurer every few years. They can, and often do, increase significantly over time, potentially becoming unaffordable in later life.

At WeCovr, our advisers are experts in navigating the underwriting process. If you have a health condition or a high-risk job, we know which insurers are likely to offer the most favourable terms, saving you time and money. As part of our commitment to our clients' well-being, we also provide complimentary access to our AI-powered health app, CalorieHero, to support you in maintaining a healthy lifestyle.

What About Whole of Life Insurance?

You may also hear about Whole of Life insurance. It's important to understand how modern policies work, as they are very different from older, more complex products.

Modern 'Pure Protection' Whole of Life In today's UK market, most whole of life policies are straightforward protection plans.

• They are designed to provide a guaranteed payout on death, whenever that may occur. There is no fixed term.
• They have no cash-in value or investment element. They are pure insurance.
• If you stop paying your premiums, the cover will end, and you will get nothing back.
• These plans are transparent, more affordable than their predecessors, and are primarily used for two key purposes: Inheritance Tax (IHT) planning or to leave a guaranteed legacy. For IHT, the payout is used to cover the tax bill on your estate.

Older, Outdated Investment-Linked Policies You should be aware of older types of whole of life plans, as they worked very differently.

• Part of your premium paid for the life cover, and the rest was invested in a fund (often a 'with-profits' fund).
• These policies were designed to build a 'surrender value' over time.
• However, they were often complex, expensive, and performance-dependent. Early surrender values were notoriously poor, often less than the total premiums paid in.

We focus on modern, transparent pure protection plans, comparing guaranteed cover from across the market to meet specific client needs like IHT planning. For most mortgage protection scenarios, a term insurance policy is more appropriate and cost-effective.

Your Next Steps: How to Secure the Best Mortgage Life Insurance

You are now equipped with the knowledge to make a smart, informed decision that goes beyond the default option. Here is your simple, five-step plan to getting the right cover at the best price.

1. Pause and Assess: Don't just tick the box. Take the quote from your mortgage adviser as a starting point, not the final word. Think about your needs beyond the mortgage—do you have children? Other debts?
2. Gather Your Details: You'll need your mortgage amount, the term, your date of birth, and your smoking status.
3. Speak to an Independent, Whole-of-Market Broker: This is the crucial step. A specialist adviser will discuss your needs in full and use their expertise to search the entire market for you.
4. Compare Personalised Quotes: We will present you with clear, like-for-like quotes for both decreasing and level term insurance, and discuss options like adding critical illness cover. We do the work so you can see the options clearly.
5. Apply and Set Up Your Trust: Once you've chosen the right plan, we'll help you with the application and ensure your policy is placed in trust, securing the best possible outcome for your loved ones.

Protecting your new home is one of the most important financial decisions you will ever make. By taking a moment to look beyond the default option and exploring your choices with an independent expert, you can secure robust, affordable protection that truly safeguards your family's future.

Contact WeCovr today for a free, no-obligation quote and see how much you could save by comparing the whole market.

Sources

• Office for National Statistics (ONS): Mortality, earnings, and household statistics.
• Financial Conduct Authority (FCA): Insurance and consumer protection guidance.
• Association of British Insurers (ABI): Life insurance and protection market publications.
• HMRC: Tax treatment guidance for relevant protection and benefits products.