Decreasing Term Assurance Calculator 2025/26

What Is Decreasing Term Assurance?

Decreasing term assurance (DTA) is a life insurance policy where the sum assured — the amount paid out on death — reduces progressively over the policy term. It is primarily used as mortgage protection insurance, designed so that the declining sum assured tracks the declining outstanding balance of a repayment mortgage.

If you die during the mortgage term, the DTA policy pays out the sum assured at that time, which is sufficient to repay the outstanding mortgage. Your family inherits the property free of mortgage debt, even though they do not receive a large cash surplus above and beyond the debt.

The main advantage of DTA is cost. Because the insurer's liability falls every year, the total expected payout risk across the policy's lifetime is much lower than for a level term policy. This reduced risk means premiums are considerably lower — often 30 to 50% cheaper than an equivalent level term policy — making DTA the most cost-effective way to specifically cover a repayment mortgage.

How the Repayment Mortgage Balance Falls

For a repayment mortgage, the monthly payment is fixed but the split between interest and capital repayment changes each month. In the early years, most of your payment covers interest with only a small amount reducing the capital balance. As the balance falls, the interest portion of each payment decreases and the capital repayment portion increases, so the balance reduces faster and faster over time.

This is why a repayment mortgage balance does not decline in a straight line — it falls slowly at first and accelerates toward the end of the term. A proper DTA policy replicates this curve, so the sum assured always closely matches the outstanding balance. The calculator above uses this formula: outstanding balance at year N = initial balance × (1+r)^(12N) − monthly payment × ((1+r)^(12N) − 1) / r, where r is the monthly interest rate.

DTA vs Level Term Assurance

Level term assurance pays a fixed sum assured throughout the entire policy term regardless of how long the policyholder has been paying premiums. If someone with a £250,000 level term policy dies in year 22 of a 25-year term, their family receives the full £250,000 — even though the outstanding mortgage may only be £30,000. The surplus £220,000 becomes a windfall for the family.

Whether this is an advantage depends on your goals. If your only objective is to ensure the mortgage is cleared, DTA achieves this at lower cost. If you want your family to receive additional financial security beyond mortgage clearance — for example to cover living costs for several years or fund children's education — level term may be more appropriate despite its higher premium.

Many financial advisers suggest considering DTA for the mortgage element alongside a separate level term or family income benefit policy for broader financial protection needs.