A guide to level term vs decreasing term mortgage protection 

Mortgage protection is a legal requirement in Ireland for anyone taking out a mortgage on their primary residence. But while the law tells you that you need it, it doesn’t tell you which type to choose. 

The two most common options are level term and decreasing term, and understanding the difference is worth your time before you sign anything. Below, we explore what sets these two forms of mortgage protection insurance apart. 

What is level term mortgage protection?

With a level term policy, the amount of cover stays fixed for the full duration of the policy. So if you take out €350,000 of cover over 30 years, the payout is €350,000 whether a claim is made in year two or year twenty-eight. 

This type of policy is typically more expensive than decreasing term because the insurer carries the same level of risk throughout.

What are the benefits of level term mortgage protection?

Consistent, predictable cover. Your family knows exactly what they will receive, regardless of when a claim is made. That clarity has real value when people are dealing with difficult circumstances.

A potential lump sum beyond the mortgage. As you make repayments over the years, your mortgage balance falls, but your payout stays the same. If a claim is made later in the term, the cover could significantly exceed what remains on the mortgage. Your family can use that surplus for living costs, other debts, education, or any other financial obligation that follows a bereavement.

Good fit for interest-only mortgages. If your capital balance doesn’t reduce with each mortgage payment, a decreasing term policy might not cover the full amount when a claim is made and could leave a shortfall. Level term is generally the more appropriate option in this situation.

Peace of mind. Knowing your loved ones are covered for a fixed, meaningful amount throughout the full policy term brings reassurance that a decreasing term cannot fully replicate.

What is decreasing term mortgage protection?

Decreasing term cover is designed to track your mortgage balance. As you make repayments and the outstanding amount falls, so does the level of cover. 

For example, if John and Mary take out a €400,000 decreasing term policy and after several years the remaining mortgage is €300,000, the payout at that point would be in the region of €300,000. 

This is the most common type of mortgage protection in Ireland and the one most people are offered as a default.

What are the benefits of decreasing term mortgage protection?

Lower premiums. Because the cover reduces over time, decreasing term policies are generally less expensive than level term for the same starting amount. For buyers keeping an eye on monthly outgoings, this can be a meaningful difference.

Matched to your actual debt. The cover broadly mirrors your repayment schedule, so you aren’t paying for more protection than you need to clear the mortgage. For many people, that’s the main requirement of the policy.

Fixed premiums. Although the cover decreases, your monthly payment stays the same throughout the term, making it easy to budget for.

Which is right for me: level term or decreasing term mortgage protection?

The answer to this depends on what you need the cover to do. Here are a few scenarios that illustrate how the decision tends to play out.

First-time buyers on a tight budget. If your main goal is ensuring the mortgage is cleared and keeping monthly costs manageable, decreasing term is usually the right call. It’s cost-effective, widely available and does exactly what it needs to do.

Families with dependants. If you want your family to be financially stable beyond just owning the home outright, level term may be worth the extra cost. The fixed payout could cover childcare, school fees or lost income in the years following a bereavement, not just the remaining mortgage balance.

Interest-only mortgage holders. Your capital balance is not reducing with each payment, so decreasing term is not the right fit. Level term is almost always the more appropriate choice here.

It’s also worth knowing that you don’t have to choose just one. Some people hold a decreasing term mortgage protection policy alongside a separate level term life insurance policy, using each for a different purpose. You can read more about how these fit together in our guide to the different types of protection policies.

One important point: your mortgage lender will offer you a policy when arranging your mortgage, but you’re not obliged to take it. Shopping around and getting independent advice can make a real difference to both the quality of cover and what you pay for it.

If you’re unsure which option suits your situation, book in for a free mortgage protection consultation with the team at askpaul. We’ll look at your mortgage, your circumstances and your budget, and give you honest advice with no pressure and no jargon.

Sources

Consumer Credit Act 1995, Section 126 — Mortgage protection insurance requirement

Citizens Information, Insurance protection on mortgages

Central Bank of Ireland, Consumer protection

Disclaimer

This article is for general information purposes and is not an invitation to deal or address your specific requirements. Any expressions of opinions are subject to change without notice. The information disclosed should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information of the various source material, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Protection premiums are subject to a completed application form and the provider may require additional health screening information. This further information and assessment may increase the cost of cover.