What is Level term life insurance?
‘Level term’ means that the sum assured ( the amount you choose to insure) and the monthly premium will remain the same throughout the term of the policy.
When arranging a policy it is important to consider how long you want the policy to run for as well as the amount you are insured for.
Level term life insurance is generally taken out for 2 reasons:
- To pay off an Interest only mortgage in the event of the policyholder dying or being diagnosed with a terminal illness
- To provide a lump sum for the family in the event of the policyholder dying or being diagnosed with a terminal illness
Important factors to consider when arranging cover:
- The term of your cover. When arranging your cover you can specify the number of years you would like the cover to run for. Alternatively, the cover can run until you reach a certain age. For example retirement age, or until you reach a specific age (eg 80 years old). Currently, the longest ‘term policy’ available will provide cover until you reach the age of 90. You can usually select a term of between 2 years and 50 years.
Subject to affordability now and in retirement, it is usually better to take out cover over as long a period as possible. None of us knows when our day will come and renewing cover later in life would potentially be unaffordable and/or unobtainable. This is based on the rationale that premiums increase with age because of the risk of dying increases as we get older.
- The sum assured. If the cover is being arranged to protect a debt, then the cover should be equal to the outstanding debt. This way, the benefit paid will be sufficient to repay the debt as and when a claim is made. We can guide you as to how much cover you should arrange if it is to be used to protect your family.
Terminal illness cover is usually included within a life insurance policy. It means that the benefit (sum assured) will be paid out to the policyholder in the event that they are diagnosed with a terminal illness. Evidence from a GP or Consultant confirming that the policyholder has less than 12 months to live will be required. Beware, as not all insurers will pay a claim for terminal illness if the diagnosis is made within the last 12 months of the policy.
Some low-cost life policies do not include terminal illness benefit at all. We can advise you on the most suitable insurance policies available.
Generally, we advise that cover should be written into a Trust. The main benefits are:
- The proceeds from the life policy do not form part of the Estate and are excluded from any inheritance tax calculation. This means that the overall value of the Estate for the calculation of inheritance tax is reduced. This lowers the potential tax liability and in some cases may result in no tax being payable.
- The benefits are distributed more quickly than they would be had they not been written into a Trust because when held in a Trust, they do not form part of the Estate. This is particularly relevant if no Will is in place, or if an inquest is required, as, in either of these instances, payments can be delayed by months or even years in complex cases.
- The person who is gifting the benefits of the life policy, known as the Settlor, has the peace of mind of knowing that the benefits will go directly to the person/people who they wish to benefit from the Trust.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Trusts are not regulated by the Financial Conduct Authority.
Probably not if the cover is being arranged to protect a loan. If the main purpose of arranging cover is to leave a lump sum for your nearest and dearest, we normally advise that it’s a good idea to arrange your cover with an indexation option. Just as the sum assured increases with this option, your premiums will also.
Most providers allow an ‘opt-out’. You will receive an annual notification informing you of your new premiums and benefit amount and should you wish to opt-out, you can. Your premiums and benefits will then be frozen at their current level.
Whilst you are welcome to get a quote online, we would recommend you speak to one of our advisers.
Any quote that your adviser provides you with will take into account your circumstances and medical history, as well as your budget!
An online quote is just that – a quote – it isn’t a definite offer of cover. What really matters is the premium you are offered, after your application has been assessed.
Call Freephone 0800 644 4468 – Monday to Thursday from 09.00 to 19.00 and on Friday between 09.00 and 17.00.
Interested in related stories?
Take a look at our handy guides ‘What Cover is Right for me?’
Do you suffer from a medical condition and concerned you can’t secure Life Insurance? Please view our ‘Medical Guides’ for further information.
Whilst we will make every endeavour to help someone to arrange insurance, there is no guarantee of success. All applications are subject to underwriting.
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