Level term life insurance

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What is level term life insurance?

Level term life insurance is a type of term life insurance that will pay your beneficiaries a sum of money in the event of your death. With this type of life insurance, you are able to determine the size of the payout you would like to receive (the sum insured) and how long you would like to be covered for (the policy term).

This is different to decreasing term life insurance, in which the payout you receive decreases over the length of your policy, in line with payment commitments such as a mortgage or other debts.

How does it work?

For a better understanding of how level term insurance works, let's take a look at an example:

Let's say you choose to set the policy term at 30 years for the amount of £100,000. This means that if you were to die anytime during that 30-year period, your beneficiaries would receive the fixed amount of £100,000. 

However, if you die when the policy term has expired, your dependents will not receive a payout. So, if anything happens to you during the policy term coverage period, your beneficiaries will be paid the sum of money you determined when you first took out the policy.

In order for this to happen, you must pay a set amount of premiums every month. The cost of these premiums can depend on a number of things, including your age, your health, your family medical history, and whether or not you smoke. This cost is also dependent on the value of payout you would like and how long you would like to be covered for.

What are the benefits of level term life insurance?

The primary benefit of having level term life insurance over other types of life insurance policies is that it provides more stability in terms of its prices. Since the payout is fixed and won’t change over time, the premiums you pay per month will also stay the same, regardless of inflation.

Therefore, by having fixed monthly payments and a fixed payout, you can plan for the future with ease and be guaranteed not to have any costly surprises along the way for you or your family.

Another reason why people choose to have level term life insurance is because its payout can help beloved ones clear outstanding mortgage payments or large debts left by the policyholder. When you purchase level term life insurance, you are able to choose the amount you would like to set for the payout, meaning that you can match it to your mortgage and be assured that it will be fully paid in the event of your death (if you die within the policy term).

Keep in mind that with level term life insurance, your payout will be the same whether you claim it within either 1 year or 10 years into your policy term. This means that if you die when most of your mortgage is already paid off, your beneficiaries will get a substantial amount of leftover money.

What are the downsides to level term life insurance?

Having level term life insurance can have a few downsides that you should know before making a decision. If you don’t pass away within the term of the policy, you will not receive a payout and your policy will simply expire. This means that you will no longer be covered in the event of your death and will need to take out a new life insurance policy if you wish to continue being protected.  

It is also worth bearing in mind that if this happens and you choose to take out new level term life insurance, the cost will most likely be more expensive because you will have naturally grown older. As a general rule, the older you are, the more expensive your life insurance will be.

Additionally, with some level term life insurance providers, you are not allowed to make changes to your payout if circumstances change during the term of your policy. For example, if you have a child during your covered period and think you might want to increase your potential payout to ensure your family adapts to those changes, a level term life insurance policy may not be able to accommodate your needs because the payout sum is fixed.

Similarly, increasing or decreasing the term length of your insurance may not be possible with some insurers, so be sure to always check with your insurance company if this is allowed. Your level term life insurance will most definitely offer you stability, but that may come at a price of not being flexible to your changing needs. Therefore, planning ahead is key.

Is it right for you?

When taking out level term life insurance, you should check with your insurer if they allow you to regularly review your coverage. It is of great importance that you rest assured that even if circumstances in your daily life change, you will not be over or under-protected.

It is vital that you think carefully and objectively about the amount of cover that you realistically need. It may be tempting to cover for hundreds of thousands of pounds to ensure that your family is well looked after following your death, but this will most definitely increase the amount of your monthly premiums. Therefore, make sure to keep a realistic balance between what you can afford and what you would like to be insured. 

If you want a set amount of cover for a set amount of time, having level term life insurance is most likely the best option for you.