Level term life insurance

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What is level term life insurance?

Level term life insurance pays out a lump sum to your loved ones if you die during the term of the policy.

It pays out the same amount no matter when you die - whether this is in year 5 or year 30 of your policy. This is why it's known as 'level term'.

This makes it different to decreasing term life insurance, where the amount you’ll get as a payout decreases over time.

How does level term life insurance work?

Level term policies are straightforward. 

  • You pick your cover term: This is how long your policy runs for. Most policies run between 5 to 40 years.
  • You pick your cover amount: This is how much you'd like your policy to pay out if you pass away.
  • You name your beneficiaries: These are the people who will get your payout.
  • You pay your premiums: This can usually either be done monthly or annually.
  • Your policy pays out if you die: This will need to be in a way that's covered by your policy during your cover term.

What can my level term life insurance pay-out be used for?

Your level term life insurance pay-out goes to your loved ones and can be used however they see fit. Most people choose to use it to:

  • Pay off a mortgage allowing them to keep their home, and take some of the financial strain off losing a partner.
  • Support their children, ensuring their standard of living remains high in the absence of a second income.
  • Act as inheritance for loved ones, especially if they have no savings of their own.
  • Clear debts to make sure their partner isn’t left paying debts they can’t afford.

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How much is level term life insurance?

The price you pay for your policy depends on a few things.

These can include:

  • The amount of cover you take out
  • The length of your cover period
  • Your age
  • Your state of health and medical history
  • Your lifestyle - for example your weight, activity levels, whether you smoke and how much you drink

The younger and healthier you are, the cheaper your cover will be.

Below are some examples of what you might pay for your cover.

For a better idea of what you’ll pay, get a quote today.

Age Monthly cost1
18
£3.80
25
£4.40
30
£5.00
40
£7.90
50
£17.05

1. Based on £100,000 of level term cover for 20 years, non smoking male with no underlying health conditions (Feb 2022).

How much level term life insurance do I need?

Most people take out enough life insurance to allow their loved ones to carry on living comfortably if they were to pass away.

But taking out the right amount can be tricky.

You can even take out too much, which could see you paying more than you need to in premiums.

So it’s a good idea to work out how much this is for you.

To settle on the right amount, you’ll need to consider:

  • Your mortgage as you'll probably want your life insurance to clear the debt if you die during the term, otherwise your partner could lose the house
  • Your essential living costs such as bills, food, and general living expenses. Think about how much your family would need to support themselves without your income
  • Inheritance and whether you want your level term life insurance pay-out to act as such
  • Debts as any outstanding ones may be deducted from the value of your estate when you die

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Is level term life insurance taxable?

The pay-out from your level term policy is only taxable if it pushes the total value of your estate to more than £325,000.

Your estate is the sum total of everything you leave behind after you’re gone. If this exceeds £325,000, you’ll pay 40% tax on anything above that threshold. If it’s under £325,000 you pay no tax.

If you’re worried your pay-out may push your estate far above the £325,000 cut off, think about writing your life insurance in trust.

In a trust your pay-out is kept separate to your estate, meaning you won’t pay tax on it. This can be useful for ensuring your loved ones get your whole pay-out, rather than just part of it.

Level term life insurance

How can I get a level term life insurance quote?

Getting a quote for level term life insurance is easy, and only takes a few minutes. We just need a few details from you and then we’ll compare deals from the panel of insurers we work with to find you our best cover at our best price.

We’ll ask you for:

  • Your name and age
  • How much cover you want
  • How long you want to be covered for
  • An outline of your medical history
  • Whether you smoke
  • Whether you have any pre-existing conditions

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What our life insurance expert says

If you’re after a policy that’ll pay out exactly how much you want, whether you pass away in year 1 or year 21, then level term cover could be right for you. They might be a little pricier than decreasing term policies, but the peace of mind they give can often justify the cost.

Louise Thomas - Car insurance, personal Finance, mortgage and life insurance expert signature

Louise Thomas

Life insurance expert

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Should you get level term or decreasing life insurance?

Decreasing life insurance is an alternative to level term life insurance cover.

Level term life insurance pays out the same amount whether you die in year 1 or year 25 of your policy. This makes them good for ensuring you leave enough behind to support your loved ones should you pass away.

Decreasing term life insurance policies pay out less the further into your term you get. They tend to be taken out to cover mortgages, with the pay-out amount declining over time in line with the policyholder’s outstanding mortgage debt.

If you took out £100,000 of cover and died in year 5 of your term, your loved ones might get £95,000 as a pay-out. If you died in year 25, they might get £10,000. Decreasing term life insurance tends to be cheaper than level term life insurance.

If you only want it to cover your mortgage, then decreasing term may be for you. But if you want to cover a bit more and have a fixed lump sum, consider level term life insurance.

What happens if I outlive my life insurance term?

If you outlive the term of your policy, your cover ends. You normally won’t get back what you’ve paid. But life insurance is designed to work as a safety net – your payments guarantee that if you were to die during the policy term, your family would be supported. So, surviving to the end of your term can be a win-win situation, and the payments are often justified by the peace of mind you get from having that safety net in place.

Can I get joint level term life insurance?

Yes, level term cover is available as a joint policy. Here you’d cover two lives on one easy-to-manage policy. Joint policies tend to be cheaper than taking out two separate life insurance policies, so they’re a useful option for couples.

To get a joint level term cover quote, simply select the joint option when you’re getting a quote.
 

Does level term life insurance cover pre-existing conditions?

Most level term life insurance policies will cover pre-existing conditions, but you may have to pay more if you have one. A pre-existing condition can be anything from asthma to heart disease. It’s worth checking the policy wording on pre-existing conditions before you buy.

Can I get critical illness cover with level term life insurance?

Yes, critical illness cover is available as an add on with any level term life policy. For a slightly higher price per month, you could be eligible for a pay-out if you suffer a severe injury or become seriously unwell during your cover term. This is a handy way of increasing your safety net, helping to ensure that your family will be financially secure no matter what life throws at you.

Wondering why we ask all this? Find out in our guide on how life insurance premiums are calculated.

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