Decreasing Term Assurance or DTA is a very cost effective way to cover your outstanding mortgage debt in the event of an untimely death.

We all know of the uncertainties in life and can testify as to how from seemingly out of nowhere unexpected change happens!

None of us know what the future holds and that is why life assurance protection, especially to protect our loved ones is such an important consideration.

Decreasing Term Assurance or DTA is often recommended by us to help cover a mortgage in the event of the death of either or both breadwinners.

It’s normally the least expensive of the Term Assurances, DTA does what it says on the label. The level of cover decreases during the term of the policy as during that term more of the mortgage debt is being repaid. However, the premiums do not reduce.

DTA is commonly used to provide cover for a Capital & Interest Repayment mortgage.

Premiums are fixed throughout the policy term, and the premium rates are usually lower than that of Level Term Assurance because of the decreasing benefit.

Let’s see how DTA works by way of the following example:

A client takes out a £250,000 mortgage over a 25-year term. The balance outstanding will reduce gradually over the 25 years by the repayment of the capital element of the mortgage – usually in monthly instalments to a final end balance of zero. Decreasing Term Assurance works in a similar way, reducing year by year throughout the 25-year mortgage term.

Many DTA policies reduce the life cover protection level based on an assumed mortgage interest rate of 10%. Currently (in 2022) many home owners are paying mortgage interest at far less than 10%!

Now, providing interest rates do not go over 10%, the benefit should reduce slower than the mortgage debt, ensuring that the mortgage debt is repaid in full in the event of death. But there are no guarantees that the cover level will match the exact level of mortgage debt, so it is crucial that regular reviews are carried out.

The 2 key benefits of DTA are as follows:

1. The policy provides a tax-free lump sum on death or terminal illness which can be used to cover the outstanding mortgage or loan.
2. The level of cover reduces each year – closely in line with the sum you owe and that is why the premiums are often lower than other life cover policies.

Please note: DTA is based on an assessment of the health of the applicant/s.

THE PLAN WILL NEVER HAVE A ‘CASH IN’ VALUE AT ANY TIME AND WILL COVER WILL CEASE AT THE END OF THE TERM. IF PREMIUMS ARE NOT MAINTAINED, THEN COVER WILL LAPSE.