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What is level-term life insurance?
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Level-term life insurance is one of the most common types of life insurance. It gives you a set amount of cover for the duration of your policy. So, the payout amount doesn’t go up or down, it just stays ‘level’.
If you die unexpectedly, whether at the start, middle or end of the policy term, the payout your loved ones could claim would be the same.
Like other types of insurance, you get to select the level of cover you have and how long it lasts.
You also pay fixed premiums on a level-term policy, so you’ll always know how much it will cost, and what’s covered.
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Although it can’t replace you, level-term life insurance could provide a financial benefit to support your loved ones in the event of your death. If your loved ones might struggle to meet living costs in your absence, life insurance can give you peace of mind that they’ll be financially secure.
If you pass away during the policy term, your dependents could make a claim for a payout. They could use this to pay for things like:
- a mortgage or other housing costs
- household bills and finances
- repayments on outstanding debts
- childcare costs.
With level-term life insurance, you’ll always know how much your loved ones will receive in the event of a claim. As long as you keep up with your premium payments, you’ll have cover.
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If you’re thinking about getting level-term life insurance, it’s important to consider how it will serve you and your loved ones.
Life Insurance products have no cash-in value at any time. If the policy amount has not been paid out by the end of the selected term or if you don’t pay your premiums on time your cover will stop, your policy will end and you’ll get nothing back.
Features Things to consider Predictable premiums
With level-term life insurance, you’ll pay fixed premiums throughout. So, you’ll always know how much your insurance will cost.
Higher premiums
Your premium payments may be higher compared to other life insurance policies, such as decreasing level cover. But the younger you are when you buy life cover, the cheaper it could be.
Set lump sum payout
It doesn’t matter when you pass away within the term, or how much you’ve paid towards your policy – your life insurance payout will be the same. Just make sure you keep up-to-date with your premiums, otherwise your insurer might cancel your policy.
Does not account for inflation
Level-term life insurance policies won’t take inflation into account. This means the buying power of the payout may not be the same as when you first agreed to the policy. You might want to plan ahead for this when selecting your level of cover, to make sure it’s future-proof.
Tailor your cover for different life stages
Level-term life insurance can be a useful option while you have a mortgage, or your kids are still financially dependent on you.
You only have cover within the term
Even though you’ve paid into the policy throughout the term, if you pass away after it’s ended, your dependants won’t receive a payout. You might like to extend your insurance or take out another policy. That could be more costly than your original cover based on your health and age then.
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Still not sure level-term life insurance is for you? Look at some of the other types of life insurance to see how they compare.
Decreasing cover
Decreasing life insurance is when your level of cover decreases over the length of your policy. People often use this cover to help pay a repayment mortgage, which is why it’s sometimes called mortgage cover.
If something happens to you, your loved ones have the cover they need to pay off the remaining mortgage balance.
- It gives a single payout on claims, which decreases in value over time.
- They can use the cover to help pay a repayment mortgage.
Decreasing life insurance can often be cheaper than other types of cover. As your term progresses over time, the risk to the insurer also decreases.
Increasing cover
Unlike level-term life insurance, increasing cover makes sure your payout is in line with inflation. This means your insurance cover won’t lose its buying power over time.
- Takes inflation into account.
- Payout may increase compared to the original sum insured.
Increasing cover is often the most expensive type of life insurance and may only be available over a fixed term. However, it could offer the greatest financial benefit to your loved ones.
Joint life insurance
You might also want to think about a joint life insurance policy. This can cover two people on one policy, whether that’s you and your spouse, a long-term partner or even a business partner.
This type of policy usually provides a single payout in the event of a claim, either when one or both policyholders have passed away.
Joint life cover policies can be:
- level-term
- decreasing term
- whole of life – not limited to a set term.
Joint life insurance can be more affordable than paying for two separate life cover policies. Just make sure you consider the amount of cover you’d need, and whether a single payout would be sufficient in the event of a claim.
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It depends on your circumstances. Life insurance is all about protecting your loved ones. Can they support their current lifestyle if you died? Are there any outstanding debts that would fall to them to repay?
An insurance payout can help make sure they are financially safe in the event of your death.
The main questions you need to ask yourself are:
- will I need to cover any remaining mortgage repayments?
- how much will my dependants need to support their lifestyle?
- how much can I afford to pay in premiums?
Remember, you may not need the same insurance cover for the rest of your life. There may be chances to adjust your insurance cover as your needs change, or if your dependants become financially independent. Although often you can’t change your policy once it has started. So, while level-term might be right for now, your needs might change in future.
Frequently asked questions about level-term life insurance
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Choosing between level-term and decreasing life insurance depends on how much money you’d like your loved ones to receive in the event of a claim.
Although it may be cheaper, the benefit given by decreasing life insurance will drop over time. Most people use it to cover a large financial commitment, such as a repayment mortgage, which decreases with each repayment. In the event of a claim, your outstanding balance might be covered, but little more.
A level-term life insurance policy might cost a bit more, but the financial benefit will stay the same during the policy lifetime. This will help give a little extra comfort for your loved ones.
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If your level-term life insurance ends before you pass away, you simply no longer have cover. You can choose to take out a new life insurance policy if you’d still like to have cover. That could be another level-term policy, or something else.
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No, your level-term insurance has no cash value. Only if you die within the policy term can your loved ones make a claim to get a lump sum payout. You’ll need to make sure you’ve kept up with your premiums to avoid your insurer cancelling your policy. If your policy ends without a claim being made, there’s no cash payout and you won’t get any money back.