If you’re looking into life insurance, one of the first questions you’re likely to be asked is 'would you like level term life insurance or decreasing term life insurance?'
Both policies are examples of term life insurance policies. We’ll go into what term life insurance is and what level term life insurance means on this page.
Term life insurance is a life insurance plan with a start and an end date. You can set up your plan to cover any amount of years, for example, 10 years, 20 years, 30 years etc.
Some insurers will also give you the option of running the policy until you reach a certain age - up to age 50, 60, 70, for example.
If you were to pass away during the time you are covered, your loved ones would receive a payout. If you survive the policy, there would be no payout and you would not receive a refund from any premiums paid.
Like with most insurance policies, you need to keep up your monthly payments to continue being covered and failure to do so will likely result in the policy being cancelled, and your cover being removed.
Because you may survive this policy, a payout is not guaranteed, making this one of the most affordable options on the market.
Whole life insurance is a life insurance plan that has a start date, but no end date. It runs until you pass away, whenever that may be. As long as you keep up your monthly premiums, a payout from this policy is guaranteed, making it more expensive than term life insurance.
Learn more about whole life insurance.
The insurance products offered by Cavendish Online have no cash-in value at any time. If you stop paying your premiums your cover will stop, your policy will end, and you will receive no benefit. For term life insurance, if you have not claimed before the end of your chosen policy term, the policy will end, and no benefit will be paid.
Level term life insurance is one of the most popular life insurance plans on the market. It is quite often referred to as family life insurance and as the name implies, many people set it up to protect their family if they were to pass away.
With level term life insurance, you can select an amount to be covered for, and that sum will remain the same throughout the policy. So, for example, if you set up £300,000 worth of cover over 20 years and passed away during your term, your loved ones would receive £300,000 if you died at any time, whether that be day 2 or day 7000.
Level term life insurance is generally a little bit more expensive than its counterpart, decreasing term insurance, and cheaper than whole life insurance.
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Unfortunately, like most things, there is no one size that fits all. There is no perfect age to purchase life insurance, but a good rule of thumb is to set up a plan when you have need for it.
You may be interested in our articles:
Life insurance by age: A guide
What kind of life insurance plan is right for me?
What is the most affordable type of life insurance?
If you would like a recommendation on term, amount or even which plan to go for, you can call our expert advisers on
Whilst the final decision is up to you, there are a few things to consider if you’re trying to decide between a single plan or a joint plan.
A single level term life insurance plan would only cover one person in the event of death, and would offer one payout upon death.
A joint life level term insurance policy would cover 2 people and would also only offer one payout upon death. The most common type of decreasing life insurance pays out upon the death of the first person, and then the plan ends.
It is possible to arrange a plan to payout upon the death of the second person instead, but it is less typical.
Since level term life insurance is often referred to as family cover, you may want to think about the financial impact to your loved ones if either, or both of you were to pass away during the term of the policy.
You can then use this to help you decide if you need one payout or two.
Learn more about joint life insurance.
Once again, there is no answer that will fit everyone. Life insurance will have a number of contributing factors determining the price. Things that can affect the cost of your policy include:
How much cover you need
How long you would like the cover for
Your medical history
Your occupation (usually if dangerous)
Any dangerous hobbies
This is known as the underwriting process. Learn more about underwriting.
Generally speaking, level term life insurance is cheaper to buy when you are younger and healthier. It is usually a little bit more expensive than decreasing term insurance (set at the same level), as the potential payout remains the same over the lifetime of the policy.
It is also cheaper than whole life insurance, since there is no guarantee of a payout.
A life insurance payout could be subject to inheritance tax if it enters your estate when you pass away and you are above the threshold (£325,000 for the tax year 22/23)
Learn more about inheritance tax on www.gov.uk.
If your life insurance is likely to be subject to inheritance tax, you may want to consider writing your policy in trust to ensure the funds bypass your estate and go straight to your beneficiaries instead.
Due to the fact that life insurance policies run for a number of years and the inheritance tax threshold may change, it is generally recommended for most term policies to be written into trust.
Learn more in our article - Should I put my life insurance in trust and what does that mean?
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