Level Term

What type of life insurance policy should I buy?

Most people have two main protection needs that can be covered by life insurance (often known as life assurance):

• Paying off large debts such as your mortgage
• Family protection, where you leave behind money for your family to live on after you’ve died.

Term assurance

The most basic type of life insurance is called term insurance, where you choose the amount you want to be insured for and the period for which you want cover. If you die within the term, the policy pays out to your beneficiaries. If you don’t die during the term, the policy doesn’t pay out and the premiums you’ve paid are not returned to you.

There are two main types of term assurance to consider – level-term and decreasing-term insurance. Sometimes a combination of the two is the best answer.

These plans have no cash in value at any time and will cease at the end of the term. If premiums are not maintained, then cover will lapse.

Level-term life insurance policies

A level-term policy pays out a lump sum if you die within the specified term. The amount you’re covered for remains level throughout the term – hence the name. The monthly or annual premiums you pay usually stay the same, too.

Level-term policies can be a good option for family protection, where you want to leave a lump sum that your family can invest to live on after you’ve gone. It can also be a good option if you need a specified amount of cover for a certain length of time, eg to cover an interest-only mortgage that’s not covered by an endowment policy.

Decreasing-term life insurance policies

With a decreasing-term policy, the amount you’re covered for decreases over the term of the policy. These policies are often used to cover a debt that reduces over time, such as a repayment mortgage.

Premiums are usually significantly cheaper than for level-term cover as the amount insured reduces as time goes on.