One of the most popular life insurance policy types is level term cover. These policies will offer you protection in the event that you die within a certain set period. The amount paid out will not change over the course of the policy term unlike with decreasing term insurance.
How does level term life insurance work?
When you open a level term life insurance policy, you’ll be asked to decide on a policy term (usually between 10-30 years), and on the value of the pay-out. Based on this, and on certain other factors outlined below, the cost of your monthly premium will be calculated.
You’ll then pay that premium each month for the duration of the policy. If you die during the policy term, your dependents will receive the pay-out set at the start. If you outlive the policy term, you’ll simply stop paying you premiums and will need to take out a new policy if you feel that you still require cover.
In this way, level term is different to decreasing term life insurance, for which the pay-out decreases over the course of the policy, and whole of life assurance, which doesn’t have a set term and pays out upon your death, regardless as to when that is.
What are the benefits of level term life insurance?
When you take out a level term life insurance policy, you’ll set a term at the beginning (usually around 25 years) as well as a pay-out size. This pay-out will be the same whether you die at the beginning or end of the policy term.
The stability and predictability of the pay-out make level term cover attractive, particularly if your insurance is going to cover day-to-day living costs, or the principle on an interest-only mortgage.
Costs of level term life insurance
The price of your premiums will be based on various things. Firstly, your health, you family medical history and the general riskiness of your lifestyle – this includes whether or not you smoke.
Beyond this, the length of the term you choose and the size of the pay-out you want will of course set the amount you pay for your premiums.
Generally, level term life insurance policies come with guaranteed premiums, meaning that they will stay the same throughout the course of the policy’s term. This is as opposed the reviewable premiums, which are subject to change according to various factors including general changes in the insurance market and inflation.
Level term insurance with critical illness cover
Critical illness cover is an optional extra that can be added on to any level term life insurance policy. It is designed to pay out a lump sum in the event that you’re affected by one of a list of pre-determined conditions (critical illnesses).
This pay-out can be a great help if you're unable to work due to your condition, allowing you to still keep up with day-to-day living costs and maintain your standard of life.