There are lots of options at your disposal when it comes to buying life insurance. Level term life insurance is one type of policy in particular that can provide a cash lump sum in the event of your death. But what is it and how does it work?
We'll explain what you can expect from having level term cover and what you need to know before buying a policy.
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What is level term life insurance & how does it work?
As with all types of term life insurance, the policy lasts for a set number of years. The policy will pay out as long as your death occurs within the term. If you survive the term, no payout will be made.
Level term is a specific level of term life insurance. How it works is in the name. During the policy, both the cost of your monthly premium and the future payout amount stay fixed. This means your premiums won't increase even if you're deep into the policy. Likewise, the value of your policy won't be affected.
Unlike other types of cover, like whole life insurance, it tends to be cheaper. However, there is no guarantee that the policy will pay out, and once it expires, you will no longer be covered.
What can level term life insurance be used for?
You can use a level term policy to cover a wide range of expenses. Because the policy lasts for a certain amount of time, it can be useful for covering costs like a mortgage. You can set the policy length to match the duration of your mortgage, so your family would be able to pay off the remaining balance if you die before.
There is another policy that is specifically designed to cover debts like mortgages, known as decreasing term life insurance. Unlike level term, the payout decreases over time as you make repayments on your mortgage. The premiums on this policy do remain fixed, but they’re usually cheaper than the premiums for level term insurance.
Level term cover can also be used to support your family's living costs. It can help them cover day-to-day expenses, such as food, clothing, childcare, and education costs.
You could also use it as an inheritance for your loved ones so they can be financially secure after you're gone. It can also be used for final expenses, as funerals can be unexpectedly expensive, alleviating the financial burden on your family during an already difficult time.
Why would I need level term cover instead of decreasing cover?
Level term cover can be more suitable if your financial responsibilities aren’t going to diminish over time. Unlike decreasing cover, where the payout drops as you pay off a debt like a mortgage, level term provides a fixed lump sum throughout the policy. This can be useful if you want the reassurance of knowing your family will receive the same payout.
It could also be the better option if you’re thinking beyond debts and want to protect your family’s lifestyle. For example, you may want your loved ones to have the money to cover everyday expenses and much more.
How long should I take out cover for?
How long your policy lasts is entirely up to you, but it’s worth thinking carefully about your circumstances. Policies typically last between 5 and 50 years, giving you flexibility to align cover with your main financial commitments.
For many people, the goal is to provide protection until their children are grown up and financially independent. Others may want cover to last until a mortgage is paid off or until their partner reaches retirement age.
If you’re in your 30s and have young children, for example, a 25-year policy could offer peace of mind until your children are old enough to support themselves.
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How much cover do I need?
This is one of the most common questions people ask when looking into life insurance. But how much is really enough? The first step is to look at your current financial commitments and think about how they might change in the future.
For most people, this includes covering a mortgage or rent, replacing lost income, and making sure dependents are supported.
It’s also worth considering how inflation could affect your family’s costs over time. An amount that seems enough money today may not stretch as far as 20 years. At the same time, you’ll want to balance the level of cover with what you can realistically afford to pay in monthly premiums.
If you’re unsure, speaking with one of our advisers can be a big help. They can guide you through the different options and make sure you choose a policy that provides the right level of protection.
How much does a level term policy cost?
Term policies are usually cheaper than other types of policies, though there are several factors that can determine costs. When you apply, your insurer will want to know information such as:
Your age
Health and lifestyle
Occupation
Smoker status
Length of cover
Payout amount
If you have a pre-existing medical condition, you may still be able to get cover, though, depending on the severity, it could cost more than for others.
Premiums tend to be cheaper when you are younger and are assumed to be healthy. Because premiums are fixed, buying level term cover when you are young could save you money in the long run.
Can I add extras to my policy?
When taking out life insurance, you’ll usually have the option to add extra features to tailor the policy to your needs. These add-ons can increase your premiums, but they also provide additional protection.
Critical illness cover allows your policy to pay out a lump sum if you’re diagnosed with a serious illness listed in the policy, such as cancer, heart attack, or stroke. It can provide vital financial support if you need to take time off work or cover medical costs, rather than only paying out on death.
If you’re in a couple, joint life cover can protect both partners under one policy. It usually pays out once, on the first death, which can make it cheaper than taking out two separate policies. This could be ideal if you want to make sure your partner is financially secure if something happens to you.
These extras aren’t essential for everyone, but they can provide added peace of mind and make your cover more comprehensive.
Speak to an adviser today
Choosing the right life insurance can feel overwhelming. This is especially true if you have medical disclosures, a high-risk job, or you’re simply unsure which type of cover is best for your family. That’s where our advisers can step in.
With a quick call, our friendly team will take the time to understand your circumstances and guide you through your options, so you can be confident you’re getting protection that truly meets your needs.
When you speak with an adviser, they’ll search the whole market on your behalf and recommend policies that suit your budget and lifestyle. They’ll also handle the application process from start to finish, keeping things simple and stress-free. And because their support doesn’t stop once your policy is in place, you’ll have someone you can turn to whenever you need advice.
Speak to an adviser today to get started. Or if you know what you need, you can apply for a quote online. You could be covered within 30 minutes.
