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Life Insurance Protect your family’s finances

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Level term life insurance pays out a lump sum to your dependants when you die, helping them cope financially when you're gone.

Use this guide to get the basics on level term life insurance, and learn the best ways to get the right cover at the right price.

What is level term life insurance?

Level term life insurance - also known as level term life assurance - is a policy which pays a lump sum to your dependants if you die within a specific timeframe. A level term policy of 20 years will only pay out if you die inside a 20-year period.

Level term life insurance shouldn't be confused with whole of life insurance, which does not depend on any set term and will pay out regardless of when you die.

Quick questions:

What's the difference between level term life insurance and mortgage life assurance?

In what other ways does whole of life insurance differ from level term cover?

What's the difference between assurance and insurance?

Should I buy level term life insurance?

Buying level term life cover depends on your personal circumstances. If you have no dependants and are single, this cover may not be for you.

If you do have dependants, you need to ask yourself how they'd cope financially when you die. If there'd be little financial impact, then you might not need a policy. But if they would struggle, this is a cheap way to protect them.

Level term life insurance: Need-to-knows

Do you feel you need level term life insurance to protect your dependants? Read on for everything you need to know before you buy.

  1. Leave enough to cover your expenses

    If you need level term life insurance, you shouldn't buy on a whim. The amount you choose to leave is a personal decision and nobody can tell you what the right figure is. Here are some useful things to consider:

    Outstanding debts you want to pay off.
    Outgoings your dependants would struggle to cope with.
    Future spending you would have wanted to make, eg, university fees for the kids.
    Any additional expenses a death might trigger, such as funeral costs.

    However, the higher the payout you need, the more insurance will cost. You must balance the benefit versus the impact on your pocket.

    To provide a regular income for your family, rather than a lump sum, family income benefit is an alternative life policy - it gives an annual tax-free payment for a set period, rather than a one-off lump sum.

    Will I need critical illness cover as an add-on?

    How long should I get the cover for?

  2. Single cover trumps joint cover

    When buying level term life insurance, you have the choice of buying a single policy or one for a couple. A joint policy may be marginally cheaper than getting two single policies, but once it's paid out for one of you, the other won't be covered.
    If you and your partner split, you'd have to cancel the policy (unless you wanted to keep joint cover) and buy two single policies, priced on your new age and health, which would be likely to be more expensive.

    But two single policies can be mantained regardless, and you also effectively have double the cover as it pays out on both deaths if you were both to die during the term.

  3. Brokers are best for pre-existing conditions

    Each insurer has its own rules on pre-existing medical conditions. If you’ve had issues, it’s worth speaking to a broker, who will know which insurers will get you the best rates.

    If you're over 50 and have several health issues, an over-50s' life policy is an alternative. You won't answer any health questions and there's guaranteed acceptance up to age 80 or 85. But they're much more expensive and you can't claim in the first year or two.

  4. Make sure your premiums are guaranteed

    If your premiums are guaranteed, then your insurer will never change the price, so you’ll know what you’ll be paying over the life of the policy.  Beware 'reviewable premiums' - these cost less at first, but your insurer can hike costs later on, meaning a cheap deal can potentially to become costly.

  5. Write your policy in trust

    Writing the policy in trust means you designate who you want the money to go to. It'll be paid directly to them, ringfencing it from your estate. 

    This means the money can't be claimed by your creditors. It also won't be liable for inheritance tax and, as it isn't part of a will, it can be paid quickly.

    How do I write in trust?

  6. Stop smoking to lower your premiums

    Non-smokers pay a lot less than smokers, because they're a lot less likely to die during the term. To count as a 'non-smoker', you need to have been genuinely nicotine-free for at least a year.

    One year after you quit, get a new deal and you could save big. Don't be tempted to lie. If you died and it was discovered you had been a smoker, it could invalidate the policy. If you are seriously giving up, it’s a good idea to get it noted on your medical records to back up any potential claim. See the Stop Smoking MoneySaving guide.

  7. Never rely on 'death in service' benefit

    Many employees benefit from free ‘death in service’ cover through their employer.  It'll pay out a multiple of your salary, usually around four times, while you are an employee.  The death needs to occur at work or be linked to your job, but regardless, it’s not a good idea to rely on this cover as your only life insurance. 

    You'll probably change jobs at some point and your next employer might not offer it.  If you've had any significant health problems in the interim, you may find it expensive or impossible to arrange your own cover.  The younger and healthier you are, the cheaper and easier it is to get cover.

  8. Switch at your peril

    If you already have a level term policy, this guide could help you cut the cost if you decide to switch. But there's no guarantee you'll save. If your policy was bought years ago, or you've had health problems, the savings from buying a cheaper policy may be cancelled out by your increased risk level and/or age.

    If a new quote shows you can save (make sure the cover is at the same level), all you need to do is set up the new cover. Once it's in force, end your existing policy. Remember to check the T&Cs carefully.

     

How do I buy level term life insurance?

There are four main routes to buying a level term life insurance policy. You can use a comparison site, go directly to an insurer, use a discount broker or use a commission-based broker.

What's the difference between a discount broker and a commission-based broker?

What is the best route to take?

What's the difference between guaranteed and reviewable premiums?

Level term life insurance: Best buys

Read the basics and mortgage life assurance need-to-knows? If you're sure the product is for you, it's time to buy. The sections below outline some of the cheapest brokers and direct insurers in the market.

Step 1: Benchmark using comparison sites

Buying via comparison sites is not always cheapest but it is a good place to gauge the rough price and provider best suited to you. Theidol.com, Gocompare and MoneySupermarket are good starting points.

Step 2: Check the rates of discount brokers and direct players

If you know what product you want, check discount brokers' rates to see if you can make a saving. Discount brokers charge a one-off fee for their services but can still be cheaper over the life of a policy.

A 45-year-old smoker buying a policy via MoneySupermarket will pay £46.86 per month. But you can get the same policy from Cavendish Online for £39.45 per month with a one-off £35 fee over the life of the policy.

Also try Moneyworld, which charges a £25 one-off fee. Alternatively, check the rates offered via comparisons and brokers direct with the insurer to see if it can offer a better deal.

Step 3: Consider advice for complicated circumstances

If you need advice, think about using a commission-based broker. A commisson-based broker gets paid by the insurer's commisson. So it is possible they won't charge a fee - but they will offer advice on the policies they sell.

If you have complicated circumstances, such as medical conditions or complex trust issues, or want a waiver of premium (where you don't have to continue making monthly payments if you become seriously ill or disabled), commission-based brokers could be the best option for you.

Go to an independent financial adviser

Go to a specialist advisory broker

Try TQ Online and Life Assure Online. The top pick discount brokers are Cavendish Online and Moneyworld and both will give cheap premiums. Remember, though, that a discount broker will charge a small fee but sacrifice the commission. The broker uses the fee to lower your premiums, but it won't offer any policy advice.

Step 4: Check your policy

Always double-check the policy terms. Once you've found the best quote, check whether it's suitable. For instance, if you're a smoker, have you disclosed that?

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