Level term life insurance

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What is level term life insurance?

Level term life insurance is a type of life insurance that runs for a set period of time. This set period is known as your ‘term’ and can be anything from 5 to 40 years. Longer terms may be available, but 40 years is the maximum we compare.

The ‘level’ in level term refers to your pay-out, which remains the same amount throughout your term. So, if you die in year 5 of your level term life insurance policy, your pay-out will be the same as if you die in year 30.

You choose how long you want your term to be when you buy the policy. You’ll also choose your cover amount – this is how much your level term life insurance policy will pay out if you pass away.

If you die during the policy’s term, your loved ones will receive your cover amount as a cash lump sum.

What does a level term life insurance policy include?

Like all life insurance policies, level term life insurance will pay out if you die in a way that’s covered by your policy, as long as it happens during the time you’re covered. This includes death from illnesses developed during the policy term, as well as fatal accidents.

How much is level term life insurance?

Level term life insurance is more expensive than decreasing life insurance. But exactly what you pay depends on your particular policy and circumstances.

Usually, the higher the amount of level term life insurance cover you choose, the more expensive it will be. Your health and medical history will also be taken into account. The older you are when you take out a level term life insurance policy, can also affect the cost. To be sure you're getting a good deal, it’s best to shop around for life insurance.

We've set out some examples below for different ages. These are based on a level term policy with £100,000 of cover over 20 years.

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).

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.

What isn’t covered with level term life insurance?

There are a few things life insurance typically won’t cover:

  • Death due to alcohol or drug abuse
  • Death due to reckless acts
  • Suicide or death due to self-inflicted injury

Your insurer might have their own exclusions, so it’s worth checking what these are before taking out level term life insurance. Try our guide on life insurance exclusions for a deeper look at what isn’t included.

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Is level term 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. In a trust 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.

Level term life insurance

How much level term life insurance do I need?

Before you take out level term life insurance, it’s worth thinking about how much cover you want.

Most people take out enough cover to ensure their loved ones could carry on living comfortably if they were to pass away. 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 think about:

  • Your mortgage, think about how much you have left to pay, and whether you want your life insurance cover amount to clear the rest of your mortgage if you were to pass away before it had been paid.
  • Your outgoings such as bills, food, and general living expenses. Think about how much your family would need to support themselves without your income, and factor this into your cover amount.
  • Inheritance and whether you want your level term life insurance pay-out to act as inheritance. If you do, factor this into your cover amount.
  • Debts to clear. It’s also important to factor in any debts you’ll be leaving behind as these will be deducted from the value of your estate.

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.

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Louise Thomas

Life insurance expert

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How long do I need cover for?

Once you’ve settled on a cover amount, you’ll need to think about how long you want your level term life insurance policy to last.

If you have a mortgage, and want your pay-out to clear it, you could tie your policy length to the remaining years left on your mortgage. This way, you’d know it’d be paid no matter when you died.

If you have a young family, it’s worth thinking about how long they’re likely to be dependent on your income. Take out a level term life insurance policy for that amount of time, and you’ll know they’ll always be supported if you were to pass away prematurely.

Getting the right policy length can be tricky but tie it to the amount of time you expect your income to be depended on and you can’t go wrong.

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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Can I get life insurance with no fixed term?

Yes, if you’d like life insurance that’ll cover you until the day you die then consider whole life insurance. Here you choose how much cover you want, and then pay a monthly premium based on that amount. If you die, your loved ones then get your cover amount as a cash lump sum – no matter when you die, your loved ones get your cover amount as a cash lump sum. This could be 5 years after you take out the policy or 40.

In some cases, you may not have to pay forever, either. Certain policies will allow you to stop paying after a certain age.

Whole life insurance is also known as 'over 50s life insurance'. You can take out a policy through our site if you're aged between 50 and 80. There are downsides to whole life cover. One is that because there's no end date on the policy, it’s possible to pay more in than you’d get in your pay-out. However, the peace of mind in knowing your loved ones would be supported if you were to pass away can justify the cost.

For most people, level term policies work just fine. They provide a safety net for long enough to ensure their dependents would be cared for financially if they passed away.

What are the pros and cons of level term life insurance?

Pros:

  • Your pay-out stays the same so you know precisely what your loved ones will receive if you die during the policy term, whether it’s year 5 or year 40.
  • Your monthly payments remain the same provided you don’t change the policy.
  • Loved ones can use the pay-out to cover a mortgageor any other outgoings.

Cons:

  • Inflation can impact the purchasing power of the lump sum, because the pay-out stays the same throughout the term of the policy.
  • Level term life insurance is often more expensive than for decreasing term life cover.

Need more help?

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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