Level Term Life Assurance

Level term life assurance is a policy that spans for a fixed period of time, with a fixed payout amount if a claim is made at any time during the policy term.

This means that if a policy is taken out over 20 years, the payout will be the same should a claim be made during the first year, or the 20th.

Who is level term life assurance for?

Level term life assurance is usually taken out over the same time period as a key debt, most likely a mortgage. Alternatively, it can be used to protect your family by providing a lump sum in the event of your death during a specific period, for example whilst your children or other dependents are reliant upon you.

Should you have a 25 year mortgage, a level term life assurance policy would typically be taken out over the same time period.

In this instance, it’s important to assess the level of cover you need. For instance a level term policy pays out the same amount throughout the term of the policy, whereas your mortgage balance will decrease over time. In the event of family protection, you may want to include an increasing option in order to protect against inflation.

Level term life assurance vs whole of life assurance

Level term life assurance differs from whole of life assurance in that there is no definitive payout due to the fixed term of the policy. You could outlive the term of your policy.

With whole life assurance policies, you are covered until your death, meaning you are guaranteed a payout. This, however, is reflected in the flexibility of the product and the premiums you are likely to make.

Decreasing term vs level term life assurance

Similar to level term life assurance, decreasing term life assurance is a policy set for a fixed period of time. However where level term has the same payout throughout the full term of the policy, a decreasing term policy reduces the level of payout as time goes on.

This is reflective of debts, like a mortgage balance, decreasing as time goes on. The is particularly relevant for a capital repayment mortgage where the balance of the debt decreases as monthly payments are made.

If you’re on an interest only mortgage, it could be that level term is a more suitable policy as the balance of the debt doesn’t decrease throughout the term of the mortgage. This means that you still owe the same level of capital at the end of your mortgage deal as you did at the start – so the level term payout could be more beneficial.

Decreasing term life assurance means you’re only covered for the amount you need, on the assumption that your mortgage balance decreases over time. If your debts are to stay at the same level or even increase, it could be a decreasing term policy leaves you short of the cover required.

Considerations of level term life assurance

A key consideration of a level term policy is whether you need the same cover amount throughout the full term. As your debts will likely decrease over time, it could be you’re paying too high a premium for cover you don’t necessarily need, and a different product like decreasing term life assurance could be more appropriate.

For example if your capital repayment mortgage balance is £150,000 at the time of taking out a 20 year policy, it’s very likely this mortgage balance will have substantially decreased in 20 years time, and you may not need to be covered for that amount for the full policy term.

It’s important to assess the level of cover you need upfront. It could be you take out a policy for £75,000, reducing your premiums but giving you a reasonable level of cover for the policy term. It’s best to discuss this with your assurance adviser.

It’s also important to consider what cover you might need after the fixed term ends. If you want to extend your cover beyond the fixed term, you will need to find a new policy.

Applying for a new life assurance policy 20 years after your first one is likely to be more expensive. Due to your increase in age, as well as any unforeseen changes to circumstances, this can impact your level of cover and cost of your premium.

Reputable Advice and Guidance

Level term life assurance can be affordable and easy to arrange – however shopping around for life assurance quotes and completing online quote applications can be time-consuming and confusing, so it’s best to let a professional adviser handle this for you.

So you could talk to us instead. We have a sound knowledge of the life assurance market and can help you choose a policy from one of the robust and reputable assurance companies we have good relationships with. We’ll give you a comprehensive view of the assurance companies we use to help you choose the right Level Term Life assurance that will see you through your mortgage years or provide you with peace of mind as you plan your family protection.