What is level term life insurance?
Simply, it’s a cover type that wins your family added peace of mind, especially when planning out the future of your finances.
One of the most popular insurance offerings, level term life cover will ensure that a lump sum payment reaches your loved ones, or beneficiaries, if you were to pass away within a certain length of time. Unlike decreasing term life insurance, level term policies hold their value over time, meaning that your sum assured never changes.
Think larger with your sum assured, generous term lengths and a policy bespoke to handle your existing debts.
How does level term insurance work?
If your insurance is a committed to a level term, then your policy value will remain fixed over time, rather than decrease.
There are really only two pieces of language you need to learn: term & sum assured. These are key details in your life policy that can be controlled by the policyholder.
- What is a “term”?
Every life policy will specify an active period, or term. A term is, quite easily, a commitment of time that’s written into your policy. Throughout this term, your policy will be considered active, so that any valid claims can be issued to your beneficiary. This specified window of time will hold the value of your policy.If you reach the end of your life policy, where the term expires, you’ll need to consider opting into a new insurance policy to keep your cover up. (Valid claims will need to honour the defined term in your life policy.)
- What is a “sum assured”?
Likewise, a life policy will need a specified total amount to insure, otherwise called the sum assured. This value is what makes a level term policy unique. Other life plans, such as decreasing term, will lose value as the insurance matures. Or, an alternative, whole of life assurance will keep its value, but to a lower insurable amount.
Beneficially, your fixed value can work to your family’s advantage, by ensuring that the likes of the mortgage, or other outstanding loans, are cleared away. And, what’s more, it can add up to a sizable sum assured to cover other costs, too. This could include the likes of everyday expenses.
Who is a beneficiary?
A “beneficiary” is the offical handle for the person set to receive funds from a life policy. The will inherit the benefit held by your life policy.
Your beneficiary might be:
- your children.
- Your spouse.
- any family memeber, or loved one.
Why level term life cover?
Unlike other cover types, a level term life policy can insure greater sum amounts. It is, then, ideal for those looking to protect their loved ones by leaving behind a larger sum assured.
Why do people like level term life insurance?
- Helps to manage, or repay, mortgage debts, especially sizable ones.
- Can clear away other loans, or debts, that might haunt your family if you’re no longer around.
- Leave behind a little more to tackle the everyday costs necessary to run your family’s way of life.
- Settling funeral costs, which can quickly become steep.
- Leave an inheritance behind.
As the sum assured retains its value with time, the payment can secure larger purchases, or debts. This is especially valuable for those with existing debts, which don’t drop off quickly.
Level term life insurance for mortgages
A popular inquiry asks how a life policy can manage your mortgage debts.
Mortgage types in the UK
Not every mortgage is the same.
Typically, a mortgage can be classified under two handles, which summarise how payments are managed.
- Interest Only Mortgage.
With this type of money management against a property, payments are only made to wipe-out the interest accrued against a home. You won’t be paying off the estate’s capital value, but rather the interest that matures against it over time.
If managing a mortgage of this type into a life policy, you’d need to consider how the property’s sum value would be cleared. This could be totalled into the sum assured, to ensure that the property is paid for in full.
- Repayment Mortgage.
Your mortgage is subjected to scheduled payments that slowly ebb away at the value of your loan in time. This would make, over time, the overall value of your debt lesser.
A level term applied to a repayment mortgage would ensure that the original figure of your loan is fixed. In this scenario, your life policy can win over extra money for your family, not only ensuring that a mortgage is settled, but that there’s a sum left over for other expenses – such as funeral costs, inheritance, and so forth.
How much level term life insurance do I need?
It’s not uncommon for inquiries, in the dozens, to ask about running the average costs of a policy.
For the most part, your policy will size up to your budget and goals. Yet, there are a few other common metrics that insurers might use to determine your premiums, such as:
- Your age.
- Smoking habits.
- Medical history and conditions.
- The term of a policy.
- The sum assured, or level, of a policy.
Another, often overlooked, metric is risk. This sums up your likelihood to make a claim, such as owning a lifestyle or hobbies that puts you closer to harm. (The greater the risk, the higher the costs of the premiums.)
A level term typically costs more, precisely because it holds value over time. It’s ideal for those needing a policy that captures a fixed value.
How much does level term insurance cost?
A better, if more accurate, question is to ask yourself: what, exactly, do I want to protect?
Knowing how to respond to this, though not always easy at first, will put a purpose behind your purchase. Understanding what – or who – a life policy is for can help guide the amount you’ll need covered.
Your monthly budget should empower, drive, or motivate your purchase, too. This is because a life policy can work to budgets of different shapes and sizes, especially if using a comparison tool to search out competitive rates.
Think about the running costs, such as how any negative habits (those indicating poor health, for exanple) might upset the affordability of your goal policy.
A life policy isn’t only limited to covering a mortgage, but often times looked to as a way of mapping out a more robust sense of financial certainty and security. You could use the sums held in a policy for any number of matters close to your heart – for mortgage, money or more.
Which is the best life insurance?
There’s a universe of choice, so don’t let your financial decision-making be frittered away by wanting options.
How is level term and decreasing term life insurance different?
The handle is a clue.
Each cover type clarifies its purpose in the language. And, though some similarities exist, the major differences between the two – level term versus a decreasing one – is in the final payment.
A level term policy will retain its value, meaning the sum assured remains fixed. If, unfortunately, you were to pass away within your policy’s defined term, then your family would receive the full, if fixed, value.
Whereas one holds its value, a decreasing term loses it. As its name suggests, the sum assured on a decreasing term policy will reduce over time, as the loan itself shrinks.
The payment, too, will decrease. It’s designed, simply, to mirror the value of a loan. For example, you’re on a repayment mortgage, which has shrunk the outstanding balance against your property, hen your life policy will have reduced to meet the size of the remaining sum.
Normally, a decreasing term policy will be cheaper than a level-term counterpart.
How is level term and whole of life insurance different?
Sometimes the end payments are different between policy types.
Yet, most notably, the key difference is in the definable term length. Whereas a level term policy will contain a period of activity, a whole of life styling is different.
Because the window of time holds, just like a policy’s value, a level term can add up to costlier premiums than other types. It also means that a claim is only valid inside the policy’s running term.
A whole of life cover type, as life assurance, will guarantee a final payment. It’s not contingent on a fixed term, but rather is elongated to include a lifetime. This means your life policy will run until you die.
What is life assurance?
The difference, or nuances, between insurance and assurance are too valuable to be ignored.
Life insurance will issue a pay-out if you die within a policy’s terms.
Life assurance is a commitment, or guarantee, of a final payment on death.
Level term is a form of life insurance, which means your payment fits into a period of activity, otherwise the defined term. A final payment must honour this timeframe.
Yet, whole of life, as assurance, pledges a lifelong cover amount to be issued at any point after starting a life policy. This adds mileage to your term, no longer fixed to dates or deadlines.
What, then, determines the cost-effectiveness of a policy?
A level term can hold a larger sum assured, which is especially valuable for those with property, or wishing to move into one. A mortgage amount, then, inform the sum assured.
For a younger applicant, a level term will likely be more advantageous in setting you up with a life policy that is more reactive to your debts, rather than opt into a potentially costlier whole of life setup.
Because a final payment is guaranteed, the premiums are usually pricier.
Building your life policy in the details
Every life policy, we believe, should reflect the holder’s goals and budget. It’s a matter of making things personal. And, what’s more, a life policy that really answers to your lifestyle is one with a pulse.
Joint life policy
A smart estimate places a joint policy as a more cost-effective route into insurance.
A joint policy is, simply, a life product that holds protection for two people. Protection lasts for the term, or against the first passing of a policyholder. After a valid claim, the life policy will expire (meaning a couple, on a joint cover, is only protected against the first claim.)
If a claim is issued, the other partner would have to look to secure another policy. And so, it’s worth considering if the funds, from the final payment, would be sufficient to keep your family’s way of life safe.
Planning out cover, as a dynamic project, should tally up the funds you, or your partner, might need to keep their way of life motivated and financially secure.
There is an opportunity to win savings on a joint policy. Or, you can opt into separate policies, which would likely extend the amount you’re jointly covered for – a savvy alternative for couples looking to secure a greater sum assured.
Can I have multiple policies?
Whilst a firm, budgetary option a joint policy can limit the sum assured of your life product.
Yet, if you’re eyeing a life policy that holds a greater value, you can consider how multiple policies can contribute, favourably, to protecting your wealth.
Two separate policies can be added up, jointly, to amass a greater sum assured, especially valuable if you’re indebted to a large, sizable loan (a mortgage, for example). If, reflecting on your budget and financial assets, you decide you need a greater coverage, holding multiple polices can help add money into your protection.
Critical Illness with level term life insurance
You can layer your life policy with critical illness to add in extra protection.
As an optional, yet wise, way of adding value into your life policy, critical illness extends your protection to keep you financially secure against a list of critical, though not terminal, illnesses.
It’s important to reference your policy for exact details on the kinds of things covered, which typically include, though are not limited to:
- Heart attack.
- Types of cancer.
There is an opportunity, with funds secured through this kind of benefit, to embrace private medical treatments, or alternatives. It frees up the bank, so that you can focus on recovery.
This benefit, because it adds to your life policy,
Terminal Illness with level term life insurance
As a default, most life policies will include some level of terminal illness.
This can cash out a sum after diagnosis.
Money secured from this perk, which comes at no extra cost, could be put toward handling private medical bills.
Ultimately, terminal illness cover can afford your life product that extra sense of ease.
What if I need to make changes to my policy?
If personal circumstances change, the likes of money-related stress, or things simply evolve, then you’ll likely need to talk about updating your life policy.
Timing is everything.
People often update policies when:
- They have more children.
- Change, or upscale, houses.
All of these scenarios define life moments when there’s a significant financial shift.
You could, if changes need to be evoked, nominate a special events option on your life policy.
And, firstly, it’s always worth getting touch with your insurer to clarify your coverage.
If vying for a cost-effective route, consider obtaining more quotes and comparing that against your current insurer – you would win a better savings on a new deal.
What if I outlive my policy?
Terms specify the length of your coverage – anything outside of an active term is invalid.
Terms, on average, range between 20 and 40 years.
The term is usually placed to match either your mortgage term, or the length of time until any financial dependents, such as children, are capable of looking after themselves.
Writing your life policy in trust
This process, of writing your policy in trust, is a way of communicating that you’ve assigned your rights to a named trustee on your passing.
Normally, on the death of a policyholder the value of their policy is lumped into their estate. Anything over the value threshold of £325,000 is subjected to inheritance tax and charged into a 40% rate. This can ebb at your total sum payable.
Written into trust disrupts this claim – it removes the earnings from the policy away from your estate, and therefore freeing up the final payment to reach its rightful beneficiary.
You can also avoid probate, which avoids your final sum being stalled, or queued, and so it can reach its destination quicker.
With a nominated trustee, you can designate how the funds are to be treated and distributed (adding more control into your how your funds are dispersed.)
- Reduce chances of a 40% inheritance tax.
- Skip probate, for faster payment on completion of life policy.
- Control the flow of your funds.
Where can I buy a policy?
No two insurers will offer up the exact deals; it literally pays to shop around.
How can I save time & money?
The costs of your monthly premium could look differently as you move between insurers. And because a life policy should obey your budget and meet your goals, it’s always advantageous to shop around using a comparison site.
Being happy with your life policy isn’t an impossible task. Using Life Market we can match you with policies that just feel right. It’s free to grab at qoutes and it only takes a matter of moments to complete.