What is level term life insurance?
Level term life insurance is a popular type of cover which pays out a fixed lump sum to your beneficiaries if you die within a set time period, (known as the ‘term’).
You decide on the sum insured (the pay out) and the term length, which can be anything from 5 years, 25 years, 50 years or more.
Regardless of whether you die 4 weeks or 20 years into the policy term, the pay out remains fixed. Hence the name ‘level’ term. Your monthly premiums generally remain fixed too.
Level term protection is generally a good option if you like certainty, because you know what you have to pay each month, the pay out if you die and how long cover lasts.
Why might you want level term cover?
Normally the policy term aligns with your mortgage term, to ensure your dependants are not burdened with a large debt if the worst were to happen.
Level term policies can be a great option to protect your family – You decide how long you need cover for, (i.e. until the mortgage is paid off and/or the children have left home).
You then decide how much cover you require/can afford – You may want to fully cover your mortgage, plus an additional lump sum to cover future family living expenses and/or replace your income.
It is also a good option if you need protection for the debt of an interest-only mortgage, which does not decrease over time, (unlike a repayment mortgage).
It is important to review your life insurance cover, if your personal circumstances change. For example, if you have more children, or buy a more expensive house with a bigger mortgage.
How does level term work?
Level term policies are a pretty simple concept. You set the length of the policy term, for example 20 years, and the sum insured, for example £150,000.
You determine who gets the money, how much they get and how it is paid. (You may want to write your policy in trust).
If you were to die at any point during the term, regardless of whether that is 4 weeks or 19 years into the policy, the pay out remains level – £150,000.
However, once your cover expires, you will not be able to claim on the policy. The policy also ends after a pay out is issued.
Level vs decreasing term
If you just require cover which decreases in line with your mortgage and do not need to provide your dependents with an additional lump sum, decreasing term cover may be a better option.
Decreasing term is usually cheaper than level term cover. This is because the sum insured decreases over time and therefore the risk of the insurer having to issue a big pay out is reduced.
If you have a repayment mortgage and have level term cover, the further into the policy you live, the more funds your beneficiaries will benefit from. (As long as you do not outlive your policy).
Level term vs whole of life
Unlike whole of life, it is possible to outlive a level term policy, meaning you may pay into a policy that your dependents will never benefit from. However, whole of life cover is generally much more expensive as the insurer is guaranteed to pay out at some point.
The cost of level term cover
Remember, if you outlive your level term cover and then want to take out a new policy, you may pay significantly more because of your increased age.
Your level term premiums can be fixed at the time of taking out cover. As life insurance generally gets more expensive the older you get, securing a policy while you are still young and healthy can help you fix your payments at a much more affordable rate.
Personalise your level term cover
You may want to further protect your loved one’s by securing a joint policy, or life insurance, which has a terminal and/or critical illness element included.
1) Joint or single?
You have a choice to buy cover just for yourself, or for both you and your partner. Although a joint policy may be marginally cheaper than two individual policies, it will only pay out once.
Also, if you have joint cover and your partner was to die, your policy would expire. Leaving you to renegotiate a new policy when older, which would almost certainly be more expensive.
2) Terminal illness
Level term life insurance policies now often include a terminal illness element as standard. This means if you are diagnosed with an illness covered by your policy and are expected to die within 12 months, you and your family could enjoy a lump sum to help you get through those difficult months.
3) Critical illness
You can also opt to have critical illness cover included, which pays out if you suffer a life-changing illness, (which is covered by your policy).
The type of critical illnesses commonly covered includes heart attack, stroke, blindness and cancer. A pay out could help replace your lost earnings or pay for necessary home alterations.
Level term life insurance in summary:
- Provides certainty on pay out amount and monthly premium, which are fixed
- Pay out remains level, regardless of when you die during the term
- Affordable for most, (especially if you secure cover while young)
- Cheaper than whole of life cover
- Can add terminal or critical illness elements onto your policy
- Can be a joint policy that protects both you and your partner
- Set up policy to cover your mortgage and family’s living expenses
- Good choice for short term goals, i.e. until your children finish university
- Set cover to leave an additional lump sum for your family
- Write your policy in trust to avoid 40% inheritance tax and probate.
- Only pays out if you die during the policy term
- If you cancel your policy, there is no cash-in value
- Inflation could mean the pay out is worth less in ‘real terms’ in the future
- Cover will end if you don’t make monthly payments
- More expensive than decreasing term
- Personal circumstances may change, meaning your policy is no longer suitable.
Why use Reassured to secure your level term policy?
- Life insurance is what we do, it is all we do
- We have secured 1000’s of level term policies for our customers
- We will scan the market on your behalf, finding the most competitive quotes
- 13,500+ people cannot be wrong! We have an ‘Excellent‘ average Trustpilot rating – 9.6/10
- We are completely independent, impartial and do not charge you a fee
- There is no obligation
- We are a non-advised broker – we simply listen to your personal circumstances and find you the best quotes.
Talk to our Reassured consultants on 0808 168 2025 to compare level term life insurance quotes. Alternatively Start Your Quote online today – it only takes 2 minutes.