What Is A Level Term Life Insurance Policy?

Written by Jane Wardle on February 11, 2019

Updated April 15, 2023

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It is a common misconception that every life insurance policy is the same, but in reality, there is a range of different types of life insurance available and choosing the best one for you can be confusing. If you have a family that depends on you and your income, then it is likely that you have various expenses that cover your living costs and bills.

Thinking about how your family would cope to cover these costs in the event of your death isn’t easy, but it is vital to consider if they would be financially stable if you are no longer around. One of the most popular types of life insurance is level term life insurance, which offers protection if you pass away in a set period of time.

If you are considering level term life insurance, read on for our guide on what level term life insurance is, how much it costs, and why it could be the right option for you.

What is level term life insurance?

Level term life insurance is designed to protect your family in the event of your death. It works by paying out a set cash lump sum if you pass away during the term of the policy. The length of the policy is known as the term and will be predetermined with your insurance provider when you take out the policy.

The amount that is paid out is also agreed up-front when you first get the policy and is a guaranteed payment for your family as long as you keep up the monthly premium payments. The monthly premiums and the payout amount will remain the same throughout the entire policy and will not increase with inflation.

If you do not pass away within the duration of the level term life insurance policy, then you and your family will not receive any payout. You then have the choice to take out a new policy, if you want to continue to have life insurance cover.

As there is no guarantee that the insurance company will have to pay out on level term life insurance, the premiums are often lower compared with life insurance policies that cover you for your entire life.

How much does level term life insurance cost?

The cost of level term life insurance will depend on the amount you want to be insured for, the length of the term, and your age when you are taking out the policy. The younger you are when you buy a level term life insurance policy, the cheaper your monthly premiums will be.

Many insurance companies will also take into account various aspects about your life, such as your family medical history and whether or not you are a smoker when setting the premiums for your level term life insurance policy.

When deciding how much cover you want from your level term life insurance policy, think about how much your family will need to cover all the various bills and expenses you currently have, such as your mortgage.

Why choose level term life insurance?

Level term life insurance is a good option if you want to give your family financial stability in the event of your death, by providing them with the money to pay off your debts. Level term life insurance policies are often used to cover expenses such as:

  • Your mortgage: Many people choose to have a level term life insurance policy that would mean their family could pay off their mortgage in full and not have to worry about the repayments.
  • School fees: If you are currently paying school fees for your children, or plan on doing so in the future, then you may want a payout that can cover these for your family.
  • Bills and day to day expenses: As well as covering your mortgage payments, you can leave enough for your family to cover their other household bills and expenses.
  • Debts: If you have any other outstanding debts, you may want to ensure your life insurance payout can cover these.

A popular option for those taking out level term life insurance is to cover themselves until their mortgage is paid off, or their children are grown up and are no longer dependant on their income.

If you want life insurance that will cover your no matter what age you live to, then level term life insurance is probably not for you. While it is possible to take out another life insurance policy after a level term policy ends, the premiums of a new policy are likely to be very high because of your age.

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