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Level term life insurance

Ellie Austin-Williams
Written by Ellie Austin-Williams

Level term life insurance is a form of life insurance which provides a fixed amount of cover throughout the policy term. If you pass away within the term of the policy, your family will receive a fixed cash lump sum. In this guide, find out whether level term life insurance is the best option to protect you and your family.

What is level term life insurance?

Level term life insurance is commonly used to provide a family with a fixed lump sum payment if the policyholder dies within the policy term. If you choose to take out level term life insurance, you will specify the duration of the cover and the level of cover that you require.

If you opt for a level term life insurance policy, your monthly premium payments remain the same through the whole term of the policy. This means that your monthly payments will not increase over the term of the policy, however, the amount of life cover will not change either. 

What are the benefits of fixed term life insurance?

There are a number of advantages to choosing a fixed term life insurance policy to provide cover in the event of your death. Fixed term life insurance can provide you with the knowledge that if the worst happens, your family will not be left in a difficult financial position. 

If you have substantial financial commitments, a level term life insurance policy can provide certainty that your family can meet financial obligations in your absence. The lump sum payment can help your family to maintain their standard of living if you pass away during the term of the policy. 

There are a number of reasons why you may choose to take out a life insurance policy. The payout from a level term life insurance policy may help your family to cover costs, including:

  • Mortgage repayments

  • School fees

  • Borrowing or bank loans

  • Lifestyle expenses

If you have a mortgage on your home, a level term life insurance policy can provide additional security for your family. If necessary, they will be able to pay off any outstanding mortgage in the event of your death. 

However, the payout amount remains the same throughout the term of a level term life insurance policy. This means that even if you have already repaid your mortgage in full, your family will receive the full lump sum if you pass away within the term. 

In this case, the money will be available for them to use as they wish or according to your will.

Level term vs decreasing term life insurance

The best life insurance option for you will depend on your financial circumstances, your financial obligations and what you wish the policy to cover in the event of your death. Before you commit to a life insurance policy, consider what you want any life insurance payout to cover.

If you have a repayment mortgage, you may wish to consider decreasing term life insurance as an alternative option to level term life insurance. Decreasing term life insurance is designed to provide cover for borrowing, which decreases over time as you repay it. Rather than the guarantee of a fixed sum payout, the amount of cover that the policy provides decreases as the outstanding debt that you owe the bank or lender decreases. 

The cost of cover for decreasing term life insurance is lower than level term life insurance. This means the monthly premiums for decreasing term insurance are often less than level term insurance premiums.  

What happens to your life insurance when the term ends? 

Life insurance is designed to pay out a cash lump sum to your dependants upon your death. But what if the term ends and you are alive at the end of the policy? 

If you were to outlive the term length of your life insurance policy, the policy will lapse and you will not receive any payment. You may have been paying your monthly premiums for many years, so this can be a fairly costly outcome for you and your family.

If you’d like to continue paying into a life insurance policy, you will need to take out a new policy. Alternately, you can extend the length of your current policy, although this may affect the cost of your monthly premiums.

When do I need short term life insurance?

There may be times in your life where a level term life insurance policy is unsuitable when you still require life insurance cover. In these circumstances, short term life insurance can provide an option to ensure that you are not left without cover.

Short term life insurance is often useful in situations where standard life insurance is invalidated or you are unable to obtain long term life insurance cover. 

For example, short term cover can help in periods of unemployment where you are no longer covered by an employer life insurance policy. You may also need short term life insurance if you take part in a hazardous activity, such as mountain climbing. These activities are often excluded from a standard life insurance policy.

Short term life insurance policies can be costly, so make sure you read the fine print to determine whether a short term policy is suitable for you. 

How do I find the best level term life insurance?

A level term life insurance policy will be cheaper the younger you are when you take out the policy. Typically, the older you are, the more that your monthly life insurance premium will cost, as you are considered at higher risk.

Aside from age, there are a number of factors which an insurer will take into account when it comes to calculating the cost of your monthly premium. Take into account the following factors and you can save on the costs of level term insurance.

Smokers will pay more

If you are a smoker, you will pay significantly more for level term life insurance than a non-smoker. Consider quitting and you can cut the cost of a policy dramatically.

Don’t insure for more than you need

Be aware that if you opt for the highest lump sum option, you will pay far more on a monthly basis. This may be necessary if you have expensive financial obligations, but aim to avoid over-insuring if you are looking to keep costs down.

Take out a policy sooner rather than later

The sooner you take out a level term policy, the less you are likely to pay on a monthly basis. Policies will usually also become more restrictive as you become older.

Although you can save money by taking out a level term life insurance policy at a younger age, do keep in mind that a level term policy does not increase in line with inflation. This means that if you take out a policy worth £100,000 for 30 years, the value of the cover will be lower by year 29 of the policy than the value of £100,000 today.

If you are looking for a life insurance policy which takes into account inflation over the policy term, you can consider increasing life insurance cover. 

Is term life insurance for seniors available?

Many life insurance providers will have a cut off age for new customers, although you may find that certain insurers offer term life insurance for over 70s and even seniors into their 80s. If you are in this age group, it may be worthwhile considering whether whole of life cover is more suitable at this age. Term life insurance for older people is likely to be expensive, as there is a higher risk of illness and death among older people. 

One advantage of whole of life cover is that whole of life policies have no end date. A whole of life policy will last until you pass away. It can provide peace of mind that your family will receive a lump sum when you do pass away (as long as all of the monthly premiums are paid). This can help pay towards funeral costs.

If you want to ensure that your funeral costs are covered before you pass away, an alternative option to consider is to take out a funeral plan.

How do I find the best term life insurance quotes?

The best term life insurance will depend on your specific needs. You can find a level term life insurance policy that fits your requirements by following these steps:

  • Decide the amount of cover you require

To compare life insurance quotes accurately, you will need to provide details about the level of cover you would like. You will also need to provide information about your age, health and current lifestyle.

  • Carry out a term life insurance comparison

You can use a comparison tool to find the best level term life insurance policy for your individual needs.

  • Find the best term life insurance rates

Review the results of your comparison search and apply for the policy of your choice.

Keep in mind that each insurer will use their own data and statistics to calculate your estimated policy premiums, therefore the quotes that you receive from each insurer will vary. 

Can I get an instant term life insurance quote? 

Many online providers will allow you to obtain instant quotes for term life insurance. When comparing policies, make sure that the information you provide is accurate to ensure that your policy is valid. If not accurate, you risk invalidating your insurance and leaving your family without a payout if you pass away.

How does decreasing-term life insurance work?

26th August 2020