Level Term Life Insurance

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Our guide explains how decreasing term insurance works and runs through the benefits and possible drawbacks of opting for this form of cover.

What is level term life insurance?

Level term life insurance covers you for an agreed amount of time and will pay a lump sum if you die during the policy term. The premiums are fixed with a standard level term life insurance, which means they won’t increase with inflation, for example – but neither will the payout.

If you don’t die during the term, your level term life insurance simply lapses and you’ll need to take out a new policy if you want life insurance.

It’s one of the most common types of life insurance available.

Why consider level term life insurance?

People often buy level term insurance when they take out a mortgage. Having cover in place can provide peace of mind that your mortgage will be paid off when you die, so your loved ones won’t have to struggle to meet monthly payments, or move to a different property.

It’s therefore usual to take out a level term life insurance policy for the same term as the mortgage, typically 25 years, as you may only need the cover while you are still paying off your home loan.

However, there are other compelling reasons to take out level term life insurance. For example, many people take out this sort of cover because they want to be able to leave a set amount to provide for their family if they die unexpectedly.

Whatever the reason you want to take out level term life insurance, make sure you only pay for insurance you actually need. Although it might be tempting to take out cover for hundreds of thousands of pounds to provide your family with a large lump sum when you die, the more cover you have, the more expensive your premiums will be. 

You should also check whether you have any life cover as part of your remuneration package (if you’re an employee, of course). Many firms provide life insurance with a sum insured of, say, four times the individual’s salary, as part of their employee benefits offering.

Alternative options to level term life insurance

Level term life insurance is the ideal option if you are looking for a set amount of cover for a certain period. However, if you are thinking of buying a policy specifically to cover a debt that will shrink over time, such as a repayment mortgage, you might be better off opting for ‘decreasing’ rather than level cover. 

Decreasing life insurance policies pay out an amount which reduces over time, and means your premiums will be cheaper than with a level term life insurance policy.

Another alternative is a family income benefit policy, which will pay out a monthly income from the point of claim to the end of the policy term and, again, can work out cheaper.

You can also buy increasing term insurance, which gives you the option to increase the sum insured at certain points during the term, such as when a child is born. This will also increase will be reflected in your premiums.

Always give careful thought as to which kind of policy is likely to suit your needs, and compare a wide range of policies before buying cover. Premiums can vary hugely depending on which provider you go to.

Compare level term life insurance

When you compare life insurance quotes with MoneySuperMarket, you’ll be asked a series of questions about yourself and the amount of cover you need. If you don’t know how much cover you should opt for, use our calculator to add up your various financial obligations.

When you get to the results page, it will automatically show the level term policies – but you can change this to show decreasing term policies too. You can also adjust the level of cover or the term duration to see how these affect your monthly premiums.

Remember that when you compare level term life insurance, it’s not all about price. You should look at the percentage of claims paid, and whether the policy includes elements you may need such as Accidental Death Benefit or the ability to increase cover on certain life events.

Some insurers offer extras such as free legal advice, access to counselling services and a number of discounts. 

Review your level term life insurance cover

You should regularly review your life insurance to make sure it still meets your needs, especially if your circumstances change. 

For example, if you buy a bigger property and extend your mortgage, you are likely to need additional cover, perhaps for a longer term. You might also want greater protection in place if your family expands. 

Remember, however, never to cancel an existing policy until you have a new one in place, as this will leave your loved once without any protection. 

It’s also worth noting that policies become more expensive the older you get, so rather than cancelling any existing cover, it’s worth considering whether or not it might be more cost-effective to take out an additional policy to supplement what you already have.

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