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What is level term life insurance?

Level term life insurance is a type of term insurance that pays out a cash sum if you die during the time your policy runs. The amount paid out is the same whether you’re near the start or end of your policy. It's the simplest and most straightforward type of life insurance. 

What does the word ‘term’ mean in level term? 

It’s the period of time your policy runs for and the length of time you’ll have to pay premiums for – say 10, 20 or 30 years. When you apply for your life insurance, you’ll also have to decide what pay-out you need. This will be factored into the cost of your policy. 

Other things that will affect how much you pay for your premiums include: 

  • Your age
  • Your height and weight
  • If you smoke
  • Your lifestyle – including how much you drink
  • Your medical history.

As long as you keep up to date with your payments, your beneficiaries – for example your partner and children – will get a guaranteed lump sum payment. If you don’t die within the policy term, you and your family won’t receive anything. In that case, you’ll have to take out a new policy if you want to continue to have the security of life insurance.

What can level term life insurance cover?

The pay-out from level term life insurance can be used in the way your beneficiaries want. For example, it can help: 

  • Cover a mortgage
  • Pay for school or university fees
  • Pay for everyday living expenses
  • Give your loved ones a nest egg
  • Pay for your funeral
  • Pay off personal loans and debts.

What are the benefits of level term life insurance?

Level term insurance is useful if you want to make sure the people you love get a fixed lump sum of money so they’re supported if you die.

Another benefit is that your premium will stay the same throughout the length of the policy, unless you make any changes to your policy.

What are the drawbacks of level term life insurance?

Because level term insurance gives you the security of a fixed sum of money, premiums will usually be higher compared with decreasing term life insurance policies. Typically, the younger you are when you buy this type of cover, the cheaper it’s likely to be.

Level term policies also don’t take inflation into account, so the pay-out amount might seem more than adequate when you take out the policy. But 20 years on, it might be worth a lot less.

How much life insurance cover do I need?

It can be a tricky decision to make. Taking out too much life insurance could mean that your premiums might be higher than you’re prepared to pay. On the other hand, underestimating the cover you need means your family might not be left with enough money to support them. Think carefully about how much you’ll need as a pay-out to protect the people you care about most. Don't forget to factor in inflation too. 

Consider these questions:  

  • What payments will they need to cover?  
  • How much will they need to live comfortably?  
  • Will their own ability to earn be affected if you die? 

If you have a death in service benefit as part of your employment package, factor this in when deciding how much you want your term cover to be. But remember, you may lose this benefit if you change jobs as it's not offered by all employers.

To help you figure out how much insurance you might need, try our simple-to-use life insurance calculator. Working out the amount of cover you need will help you decide which type of policy – level term or something else – is right for you.  

How long should my life insurance cover last?

That’ll depend on what you want the cover for. You could choose life insurance based on how long your children might need financial support for if you were to die. Or you could take out cover that lasts as long as your mortgage.

Do I need to review my life cover during the term?

You should review your policy regularly to make sure it still meets your needs, especially if you’ve experienced any major life changes like marriage, new family members or divorce. You'll also want to check your policy is still right if you've had a substantial pay rise, moved up the property ladder or downsized.

What other types of policy should I think about?

Decreasing term life insurance is similar to level term insurance, in that you choose the length of time the policy runs for. However, with this type of insurance, the amount of money paid out falls throughout the term. It’s designed for people whose financial commitments will reduce over time, for example, those with a repayment mortgage.  

  • Increasing term life insurance: With this type of policy, the pay-out goes up throughout the term to take inflation into account. That way, the value of the pay-out won’t diminish over time. Increasing term policies are usually more expensive than level or decreasing term policies, and premiums also go up while you have the policy, often every year.
  • Whole of life insurance: these policies tend to have higher premiums than decreasing or level term payments. That’s because (as the name implies) the policy is guaranteed to pay out whenever you die, as long as you continue to pay your premiums. 

If you need to know more about how whole of life policies work, or what one might cost, call our advisors at LifeSearch on 0800 072 1147.

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They're really friendly and can help you figure out just what you need.

There are other types of life cover to think about as well. For example, you could take out a joint life insurance policy  with a partner. But this will only pay out once, and on the death of the first policyholder.

You could also think about income protection insurance, which can pay out if you can’t work because you have an accident or get sick, or if you lose your job.

Frequently asked questions

Which type of term cover is best for me?

It depends on your circumstances and the type of financial commitments you want to cover. It could also depend on the type of mortgage you have. For example, decreasing term cover wouldn’t be suitable if you have an interest-only mortgage, as it wouldn’t cover the outstanding balance you need to pay back.

Can I have more than one life insurance policy?

It is possible to have multiple life insurance policies. For example, you could have both a policy to cover your mortgage and another policy to protect your children financially while they’re growing up. 

However, in some cases it may be better to amend your current life insurance policy. You'll need to work out what the best option is for you.  

See more on having more than one life insurance policy

What’s the difference between level term and decreasing term life insurance?

Level term life insurance gives a fixed payment if you die within a set period. For example, a level term policy taken out for 25 years for cover up to £100,000 will pay out that sum, whether the policyholder dies within three years or 20 years. After 25 years you’d stop paying premiums and you wouldn’t get a pay-out after this date.

A decreasing term policy decreases in value over the term of the policy. The longer the policy lasts, the less of that £100,000 amount will be paid out if you die. For example, if you die five years into the policy, it may pay out £90,000. Whereas, if you died 25 years into the policy, it may only pay out £10,000.

What happens when the term ends?

Hopefully, when your policy term comes to an end, you’ll still be alive and well. But it does mean that if you die after the policy expires, there won’t be a pay-out. If you still want life insurance once the term has ended, you’ll need to take out a new policy. 

If you have level term cover, you might be able to add an option to renew. This will need to be done when you take out a new policy, not after it’s become active. It means you can renew your cover when the time comes, instead of arranging a new policy. There’s no need to undergo a health check either. 

Just bear in mind that a renewable option is only available for level term policies and not all providers offer it.

What happens if you outlive term life insurance?

You really need to be aware of when your life insurance policy is nearing its end. That’s because, if you outlive the term of your insurance, your loved ones won’t get a payment when you die. It’s possible with some providers to extend the term of your policy, although it will likely come at a higher premium.

But before you do that, it’s worth considering whether you still need a policy. And, if so, how much you need it to pay out to give financial security to your dependents. It’s likely that your financial situation will have changed over 25 years. If your mortgage is paid off and your kids have grown up and left home, do you still need life insurance, and if you do, do you need as big a pay-out?

However, you may have traded up your property and still owe money on a mortgage, had a second family or have other commitments. Then it could be worth comparing how much an extension on your current policy would be compared to a brand-new policy.

Can I add critical illness cover to level term life insurance?

Most life insurance providers offer this as an option. Critical illness cover gives you financial protection by paying out if you’re diagnosed with an illness listed in your policy. Here’s how it works: 

  • Additional cover will pay out if you’re diagnosed with a critical illness and also if you die at a later date during the policy term. 
  • Combined cover pays out if you’re diagnosed with a critical illness or you die during the policy term (it only pays out once). 

See more on critical illness cover

I have pre-existing health conditions. Can I still get level term life insurance

Some pre-existing conditions won’t affect your ability to get life insurance. But others, such as cancer and heart conditions, will raise a red flag with your insurance provider and make it tricky to find a policy. It is also likely to make your insurance much more expensive. 

It could be a good idea to speak to a life insurance advisor, if you have a pre-existing condition.  

See more on pre-existing conditions and life insurance.

How can I save on level term insurance?

There are a few ways you might be able to cut the cost of your premium: 

  • Take out a policy when you’re younger and healthier – it’s likely to cost less than if you wait
  • Check that you’re not already insured. For example, you might be covered by life insurance through your workplace
  • Get the right amount of cover - you don’t want to be underinsured, but nor do you want to find yourself paying for cover you don’t need
  • Stop smoking, vaping and using any tobacco products – you’ll pay more for your premium if insurance providers consider you to be a smoker.

What happens if I miss a premium or stop paying?

Typically, insurance providers will offer a grace period to allow you to catch up if you’ve missed a payment be accident. But if you don't keep up your monthly payments the cover will end, and your policy won't pay out if you die.

Will my family have to pay tax on the pay out?

This will depend on how much the pay-out is and how much your estate is worth. You can consider the option of putting your life insurance policy 'in trust'. This is a relatively simple legal procedure that means its value won’t be counted as part of your estate, so will be protected from inheritance tax. However, the money should still go to the people you want to receive it. 

See more on writing your life insurance in trust.

Where can I compare life insurance quotes?

The type of life insurance that’s right for you will depend on your own circumstances and needs. The cheapest quotes may not necessarily be what work for you. But it can be really quick to compare, so why not get a life insurance quote and see if you could save?

How much does level term life insurance cost?

There are several things that can affect the cost of your life insurance, including: 

  • Your age 
  • The length of the policy 
  • The amount of cover you want

What do I need to get a quote?

To get a quote online, just give us some details including:

  • Personal details like your date of birth
  • How long you want your insurance to last
  • The minimum amount of cover you’d like
Start a quote

Or you can give the team at LifeSearch a call on:
0800 072 1147

Monday-Friday 8am to 8pm
Saturday 9am to 2pm
Sunday 10am to 3.30pm

Author image Kara Gammell

What our expert says...

“Life insurance policies are priced according to your age, general health and the amount you want your loved ones to receive if you die. When calculating how much cover you need to support your family, it makes financial sense to consider all your monthly outgoings. As well as your mortgage, rent or loan commitments, make sure you include council tax, utility bills and essentials such as the weekly food shop.”

- Kara Gammell, Finances expert

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[1] Correct as of December, 2022.
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Page last reviewed on 17/01/2022
by Helen Phipps