How does level term life insurance work?
When applying for level term life insurance, you’ll need to decide the length of time your policy will last – this is the policy term – and how much you want the value of the payout to be if you die during that term. Available policy terms will vary between life insurance providers but it might be possible to arrange cover for anywhere between one and 70 years.
The longer the term and the older you are when taking the policy out, the higher you can usually expect your monthly premium to be. Your health and family history of certain medical conditions, and lifestyle factors, including whether you smoke, will also be important in determining the level term life insurance rates and premiums you must pay. Premiums are usually payable each month throughout the policy term.
The policy will only pay out if you die within the policy term, with your beneficiaries receiving the amount that was agreed at the beginning and as specified in the policy. This will be a one-off lump sum payment.
Some life insurance policies also include a terminal illness benefit option, which will trigger early payment of the lump sum if you’re diagnosed as terminally ill during the policy term and have an expected life expectancy of usually less than 12 months.
Be aware that life insurance policies usually have certain exclusions, meaning they’re unlikely to pay out if you pass away because of a health condition you did not disclose to the insurer when setting up the policy, or as a result of alcohol or drug misuse. Missing monthly payments can also invalidate your policy and could leave you without cover in place.
If the term of your policy ends before you die, you won’t pay any further premiums, but your beneficiaries won’t receive a payout from the policy when you do pass away. There is no payout or cash value to yourself for outliving the policy either. If you still need life cover going forward, you’ll need to apply for a new policy.