What is level term life insurance?

While there are several types of life insurance, most fall under the category of ‘level term’. That means the premiums you pay, and the payout you get in the event of a claim, stay the same while your policy is active.

It’s not something any of us really want to spend too much time thinking about. But, if the worst did happen, it could be reassuring to know your loved ones would be provided for.

This guide explains what level term life insurance is in more detail, and how it differs from other types of life insurance. Read on to learn:

  • Level term life insurance does exactly what it says. You can choose how long the cover is for – that’s referred to as the term – and the payout will be level, or the same, throughout that term. You may also hear it referred to as level term assurance (LTA).

    With level term cover, your loved ones can make a claim in the event of your death, so long as your policy is still active. The same amount would be paid out, whether you’re near the start or end of your policy.

  • There are several reasons why you may consider level term life insurance:

    • Know exactly how much will be paid out to your loved ones in the event of your death. This could help to ease any financial burdens they may face in future. For example, a mortgage or existing debts.
    • If you have an interest-only mortgage, you might want to choose a level term life insurance policy rather than one that decreases. This is because the loan amount on an interest-only mortgage does not reduce over time like a repayment mortgage.
    • You can’t change a policy once it has started. So, you may want to have more than one life insurance policy, to make sure your evolving commitments are covered. For example, if you were to take out a bigger mortgage for a new house, or to complete home improvements, you may want additional cover. Just in case.
       
  • It’s important to weigh up everything before you settle on one type of life insurance.

    Features of level term life cover:

    • Payouts stay the same throughout the life of the policy. So, you’ll always know how much your loved ones will receive.
    • Can be personalised to your needs. For example, you might want to take out cover just while your children are financially dependent on you.

    Things to consider:

    • Payouts are only made on valid claims if you pass away within the policy term. If you out-live the policy, nothing will be paid out.
    • Level term cover doesn’t take inflation into account. It’s worth considering whether the amount of cover you’ve chosen will be sufficient over the full term, as well as today.
    • Protection products have no cash-in value at any time. If the policy amount has not been paid out by the end of the selected term, the policy will end, and you’ll get nothing back. The same will happen if you don’t pay your premiums on time.
       
  • If level term life insurance isn’t right for you, one of the following options could be more suitable:

     

    Decreasing cover

    Decreasing cover – commonly known as mortgage life insurance or mortgage decreasing cover – will often match the duration of your mortgage. Unlike level term cover, the sum insured decreases with each mortgage repayment, in line with your reducing mortgage balance. The premium stays the same for the length of the policy though.

    This is often a cheaper type of life insurance cover, as the risk to the insurer also decreases over time.

    Increasing cover

    Increasing cover takes inflation into account. That means the amount the policy covers can potentially rise. If you need to claim at any point, the payout will reflect the value at that date, rather than the original sum insured.

    Increasing cover is often one of the most expensive types of life insurance. However, it could provide a higher payout to support your loved ones in the event of your death.

    Whole life

    Whole life policies are not limited to a specific number of years, unlike term life insurance plans. That means your loved ones can submit a claim whenever you die. This type of policy tends to be expensive, and you may pay more than your loved ones receive as it's dependent on when you die.

    Whichever style of cover you choose, many providers also offer the option to set up a joint life insurance policy. This might be suitable for married couples, those in a long-term relationship, or even business partners in some circumstances.

     

  • Whether or not a level term life insurance policy is right for you, really depends on your needs and circumstances. For example, it could suit you if you want cover for a specific period, with fixed costs and benefits.

    When making your decision, consider:

    • What the funds will be used for. For example, you might want to provide for your children or grandchildren in the event you can’t be there. At least until they’re grown up.
    • If your loved ones would struggle to pay bills without you. You may want to have a life insurance policy in place, at least until your mortgage and debts are cleared.
    • Your age. The younger you are, the cheaper your premiums could be overall, so it may be worth getting a policy in place sooner rather than later.
    • Your lifestyle. Just like your age, your lifestyle can also impact your premium costs. If you can beat any health-limiting habits, you could benefit in more ways than one.
       
 
Frequently asked questions

Frequently asked questions about level term life insurance

  • Depending on your needs and circumstances, level term life insurance can offer a welcome feeling of security. For example, if you want to make sure your partner and/or children can manage any mortgages, debts, university fees or childcare costs in the event of your death.

    You’ll know from the start how much payout they would receive if you die, as the amount stays the same for the full term.
     

  • If you only want cover for a specific period in your life, level term life cover may suit your needs. For example, you might just want cover until your children finish school/university.

    However, if you want to provide your loved ones with a lump sum payout regardless of when you die, whole life insurance could be another option.

    As with any financial or insurance product, it’s important to weigh up all options to find a solution which best suits your needs.

     

  • Level term life insurance could be a good option if you want to leave your family with a lump sum for day-to-day living that stays the same throughout the policy.

    Decreasing term life insurance can be used to cover a specific borrowing amount, such as a repayment mortgage. As you make repayments over time, the level of cover decreases in parallel.

    As with any financial or insurance product, it’s important to weigh up all options to find a solution which best suits your needs.

     

  • If all is well and no claims are made against a level term life insurance policy, no payout will be made. This type of cover is designed to last for a fixed number of years only.

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