What is level term life insurance?
When you buy life insurance, you pick an amount – known as the ‘sum insured’ - and an amount of time to be covered for, called the ‘term’.
Level term life insurance covers you for a set sum that remains the same during the term. Premiums are always fixed with a standard level term life policy, which means the price won’t increase with inflation, for example, but then neither will the sum insured or 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 further life insurance.
Why consider level term life insurance?
If you have a mortgage, it’s often the case that the mortgage lender will stipulate having a life insurance policy in case the worst should happen to you or your partner. Some homeowners will consider level term life insurance because the lump sum can pay off a mortgage.
But what sets a level term life insurance apart from other types is that the payout will remain the same, regardless of whether you’ve made one mortgage repayment or you’ve only got one left. If you were to die having paid off the majority of your mortgage, the remaining amount could be handed down to your dependants.
It’s different to decreasing term life insurance
Another popular type of life insurance for homeowners is a decreasing term life policy. As its name suggests, a decreasing life insurance policy pays out an amount that reduces over time – for example 25 years.
This means that as you start to repay your mortgage, the amount of cover goes down. If you were to die 10 years into your mortgage, your repayment would cover the outstanding debt – but if you’d made 19 years of repayments, for example, the payout would be even lower because the size of your mortgage will have shrunk.
Other reasons to consider level term insurance
There are, of course, other compelling reasons to take out level term life insurance. For one, many people take out this sort of cover because they want to be able to provide for their family if they die unexpectedly. If you took out a level term policy, then your loved ones would be given a lump sum to do with as they wish on your death.
Are there alternatives 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.
Family income benefit insurance is another alternative policy that pays out a monthly income from the point of claim to the end of the policy term. If, for example, you died in year 15 of a 20-year term, the insurer would pay an income to your family for the remaining five years of the term. Premiums for family income benefit insurance tend to be cheaper than level term life policies.
You could also choose a joint life insurance policy with a partner or other family member. However, this will only pay out once on the death of the first member of the policy, and the surviving person will need to consider whether to take out their own life insurance policy. If they’re over 45, they may find it expensive to take out their own level term life policy.
How much does level term life insurance cost?
The younger you buy level term life insurance, the cheaper your premiums will be. According to MoneySuperMarket data, those in the 30 to 35 age group will pay an average of £9.19 per month, while those in the 45 to 65 bracket will pay around £35.01 per month for level term life insurance without critical illness cover.
If you include critical illness cover to your level term policy, the payments become pricier.
MoneySuperMarket data from January to April 2018, showing the average cost of level term life insurance by age group. Correct as of April 2018.
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’re 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 ones without any protection.
Save on level term life insurance
There are ways to save money on your level term life insurance:
- Don’t over-insure yourself. It may be tempting to take out cover for hundreds of thousands of pounds, but know that this will make your premiums much more expensive. So while you may be helping your family in the long run, it might be hard to keep up the payments.
- Check if you’re already covered by your employer. Many firms provide life insurance with a sum insured of, say, four times the individual’s salary as part of their employee benefits - especially if you have a particularly dangerous or risky job.
- Stop smoking. Smokers pay 64% more for level term life insurance without critical illness cover, and 47% extra when critical illness is included.
- Take out a policy sooner rather than later. You’ll pay more for level term insurance if you’re over 45. Life insurance for the over 50s can be more expensive, with more restrictions.
- Shop around. Whether you’re already insured, or if you’re looking to take out your first policy, it’s important to shop around to make sure you find the right cover for you, at a price you can afford.
MoneySuperMarket data from January to April 2018, showing the average cost of life insurance for people who smoked within the last 12 months. Correct as of April 2018.
Compare level term life insurance quotes
When you compare level term life insurance 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.
If you smoke, then disclose this information, because insurers can check with medical records to see your health history. Unfortunately, smokers are statistically more likely to claim on their insurance, so their premiums are higher – sometimes over 50% more than the amount a non-smoker would pay.
When you get to the results page, it will automatically show the level term life insurance policies for you to compare – 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.
Always give careful thought as to which kind of policy will give you the best cover for your circumstances and always compare a wide range of policies before buying cover. Premiums can vary hugely depending on which provider you go to.
And finally, some insurers offer extras such as free legal advice, access to counselling services and a number of discounts, so if these are important to you then make sure this is something you compare life insurance policies by.