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Level Term Life Insurance

Protecting your loved ones’ standard of living, in the event of you or your partner’s death, is a wise decision. Level term life insurance fixes the costs of protection in your premiums, as well as the sum paid out upon a successful claim.

Read on to find out more about how Level Term Life Insurance works.

What is Level Term Life Insurance?

Level term life insurance offers financial protection to your loved ones in the event of your death. This can be in the form of a lump sum of money or a regular income. However, you will only be covered with this protection during the length of the policy. This means that if you die after your level term has concluded (or you do not pay your premiums), your loved ones may receive no payout.

Taking out a level term policy means that you are agreeing to pay the same amount towards your premiums, for the entire length of the term. These products, therefore, offer more comprehensive protection than decreasing term policies. The sum assured will remain the same and can be used to cover your mortgage payments, as well as your family’s other living expenses.

To find out more about the features of Decreasing Term Life Insurance, take a look at our guide. And if you would like to find out more about other life insurance products, here is our guide to some of the different types and FAQs.

Do I need Level Term Life Insurance?

• This type of life insurance can be suitable for those with an interest-only mortgage. As the amount of cover remains fixed for the entire length of the term.
• Level term life insurance is also suitable for those who have dependents/partners and need a method for ensuring their living expenses, in general terms, are covered, in the event of your death.
• Like with all life insurance products, you will need to think about the amount of money you would need assured and how much you can afford to pay towards your premiums. You can work out what cover would be suitable for your needs by adding up your existing debts, living expenses and funeral costs, as a starting point. An independent life insurance broker can also aid you in choosing the right term life insurance policy for your needs.
• The amount you will have to pay towards your policy varies according to your chosen provider, health, age, income, family medical history. As well as your current lifestyle (i.e. how much you drink, or if you smoke or take part in ‘risky’ hobbies, such as extreme sports)

Let’s Look at a Level Term Insurance Example:

Gregory is single, 26 years old, and has just taken out his first mortgage, which is interest only. He is looking for a way to protect his debts, right up until the end of his 30-year mortgage term.

As he is young and healthy, fixing his insurance premiums with a level term life insurance policy now could work out to be great value for him. Gregory chooses to take out a 30-year fixed term life insurance policy, in order to benefit from fixing his premium payments at a low rate.

What are the Benefits of Level Term Insurance?

• Fixed Cover – When taking out a level term life cover policy, you are choosing to fix your sum assured payout, as well as your premiums. This means that in the event of your death, no matter if it happens within the first few weeks or years into your policy, your loved ones will be provided for with the same level of cover.
• Cheaper than Whole of Life- These policies tend to work out cheaper than whole of life policies. This means that level term insurance can be a cost-effective way to provide protection for dependents. Ensuring that they are looked after, as well as your debts, for as long as you choose.
• Shorter Term, Reduced Premiums – If you have a repayment mortgage, you may not need as much money assured with a payout in say, ten years’ time. Level Term Life insurance plans offer you flexibility in the length of policy terms. Therefore, you can choose to take a policy with lower premium payments, if you only need to ensure your mortgage or expenses are protected for a set amount of time. This does, however, require careful planning on your part, to make sure your cover is suitable. An independent life insurance broker can help you plan the best level of cover for your circumstances.
• Policy in Trust – With life insurance policies, it is possible to write them ‘In Trust’. This is a legal procedure where the policyholder seeks to protect any life insurance payout from inheritance tax and avoid probate, which can cause delays in getting the funds over to your beneficiaries. This is especially beneficial to those whose estate may go above the inheritance tax threshold if the policy payout is expected to be quite high. At the time of writing, this threshold is set at £325,000, before inheritance tax is payable. But please seek confirmation from a financial expert, before you consider writing a life insurance policy In Trust.

What are the Pitfalls of Level Term Insurance?

• No Investments – As this is a fixed policy, there is no investment element. Therefore, if you do not make a claim during the length of the policy, you will see no return when the life insurance term concludes.
• Inflation – These life insurance policies offer a fixed payout. Therefore, they do not take into account the effects of inflation on general living expenses. You may wish to factor this into the amount of cover you choose to take out with a level term policy.
• Personal Risk – As life insurance can be flexible, you can choose to cancel this policy, or simply not pay into it at all. If you take out a policy of this sort and then cancel it a few years, you may be older and therefore find it more difficult to find similar cover for the same price you were used to paying before. If you find that your circumstances change, it may be wise to consider getting additional cover for your new needs, rather than cancelling this type of policy altogether.

What are the Alternatives to Level Term Insurance?

• Whole of Life Insurance – This insurance product offers protection not ‘if’ you die, but rather, ‘when’ you die. This is known as life ‘assurance,’ as the payout will be ‘assured’ upon your eventual death. There are no set terms for these products. However, it is likely that your premiums will be more expensive than compared to other life insurance policies.
• Decreasing Term Life Insurance – If you’re looking for a way to protect your mortgage payments in event of your passing away, you may want to consider a policy which decreases in both premiums and payout, over the length of a term. In many cases, this can work out cheaper than taking out a level term policy.

If you would like to find out more about life insurance, and you would like to receive a free, no-obligation quote from a life insurance broker, get in touch here.