Is life insurance taxable?
The pay-out from your level term policy is only taxable if it pushes 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. Here your pay-out is ring-fenced, and 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.
What our life insurance expert says
Level term policies are a great way of ensuring your loved ones would be looked after if the worst were to happen. You can choose exactly how much you want your policy to pay out, so you’ll always know it’s enough to keep them secure.
Life insurance expert
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When it comes to life insurance, you’ll see there’s two main types – level term and decreasing.
Level term life insurance pays out the same amount whether you die in year 1 or year 25 of your policy.
The main benefit of level term policies is that your pay-out remains the same no matter when you die. This makes them good for ensuring you leave enough behind to support your loved ones should you pass away.
Decreasing term policies pay out less the further into your term you get. 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 policies tend to be taken out to cover mortgages, with the pay-out amount decreasing in line with how much the policyholder has left to pay on their mortgage. Due to this, they tend to be cheaper per month than level term policies.
Whether you opt for a level term or decreasing term policy is up to you but think about what you want your pay-out to do before signing up. 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.
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 during the quote process.
Most policies will cover pre-existing conditions, you may just have to pay more in premiums if you have one. A pre-existing condition can be anything from asthma to heart disease, but insurers will have their own list of conditions they deem to be pre-existing medical conditions, so it’s worth checking what these are before taking out a policy.
Yes, critical illness cover is available as an add on with any level term life policy. For a slightly higher premium per month, you’ll 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 security net, ensuring your family would 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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