Level Term Life Cover > Rightmortgageadvice.co.uk

Level-Term Life Insurance; A Complete Guide

Level-term life insurance offers a fixed amount of cover over a chosen number of years. If you pass away during the term, your loved ones receive a tax-free lump sum to help them cope financially. This type of cover is a core part of many family protection plans, especially for those with dependants or financial commitments such as a mortgage.

It does not build up cash value and is not the same as whole-of-life insurance or investment-linked policies.

Do You Need Life Insurance Advice?

We do not provide advice on level-term life insurance or any other protection products directly.

Instead, we refer our clients to a trusted and regulated partner firm that specialises in life insurance and protection planning. They can offer tailored guidance, free of charge and with no obligation—helping you understand your options and make confident, informed decisions.

What Does Level-Term Life Insurance Do?

Level-term life insurance provides a pre-agreed cash payout if you die within the selected term—such as 10, 20, or 30 years. The payout amount remains fixed throughout the term, which is why it’s called “level-term.”

This payout can be used by your loved ones for:

• Paying off a mortgage.
• Covering childcare or education costs.
• Maintaining living standards.
• Clearing debts.
• Leaving a legacy.

If you outlive the policy term, the cover ends with no payout—so it’s designed as pure protection, not an investment.

It’s frequently arranged in addition to decreasing term life cover, with decreasing term being used to plan for repaying a traditional repayment mortgage, and level term cover providing for ongoing living expenses and child education.

For customers with more assets, it’s an important part of planning for inheritance liabilities; especially those whose main residence would likely exceed the applicable inheritance tax relief and alternative assets to finance a potential IHT bill are not available.

Types of Cover Available

Single Life Cover:
Covers one person. The payout goes to their beneficiaries if they die within the term.

Joint Life Cover (First Death):
Covers two people (e.g. partners), but pays out once—on the first death. After the payout, the policy ends.

Joint Life (Second Death):
Less common—pays out only when both policyholders have died. Often used in inheritance tax planning.

Level vs Decreasing Term:
Level-term cover provides a fixed payout. In contrast, decreasing term cover (often used for repayment mortgages) reduces over time, in line with your mortgage balance.

Combining Critical Illness Cover:
You can often combine critical illness cover on a 1st event basis, i.e. paying out a fixed sum upon either the diagnosis of a critical illness or upon death, whichever came first. But, critical illness cover is considerably more expensive, and income protection may present better value.

Key Policy Choices for Level-Term Life Insurance

When setting up your policy, you'll typically make choices around the following:

Policy Term

Decide how long the cover should last. Common options include:

• Until a specific age (e.g. 65 or 70).
• A set number of years (e.g. 25 years to match your mortgage).
• Until children reach adulthood Longer terms generally cost more, but provide broader protection.

Cover Amount

You choose the lump sum amount your family would receive if you died during the policy. Consider existing debts, mortgage balance, future expenses, and income replacement needs.

Typical ranges:
£100,000 – £500,000, but higher sums are available if needed.

Premium Type

Most providers offer:

• Guaranteed premiums: Fixed for the entire term. Easier to budget for.
• Reviewable premiums: Can increase periodically (e.g. every 5 years). These may start cheaper but could rise significantly over time.
• Low start premiums: Increase year on year. These products will become significantly more expensive overall in most cases.

Guaranteed premiums are usually preferred for predictability and cost control. Caution should be applied to low start premiums and reviewable premiums.

Reviewable premiums offer the insurer the ability to reprice plans based on claims experience, and demographics or information disclosed in your initial medical questionnaire could therefore lead to cost increases at a later date.

Low start premiums will rise significantly over time and will typically cost significantly more than a guaranteed premium alternative if kept for the term. Usually, they will not be recommended for someone who could afford a guaranteed premium alternative, but are often used where medical issues cause a temporary spike in premiums, such as someone who had recently had growths diagnosed as benign, where many insurers might load premiums if these were discovered in the last five years. But it’s important to remember that insurers typically load prices where statistical risk is higher. In the example above, someone whose diagnosis altered for the worse might find themselves unable to switch to a guaranteed premium in the future.

Using Indexation to Keep Pace with Inflation

Some insurers offer index-linked level term policies, where the cover amount increases annually in line with inflation (e.g. Retail Prices Index).

This helps ensure that your payout retains its real-world value over time.

For example:

• Initial cover: £200,000.
• After 10 years of 3% inflation-linked increases: ~£270,000.
• Your premium also rises each year, but your family receives a more relevant payout if you pass away later in the term.

Indexation can be valuable if you’re young, have a long-term mortgage, or are buying cover early in your career. Most policies allow you to opt out of increases if affordability becomes an issue.

Important Features to Consider When Choosing Level-Term Life Cover

Terminal Illness Benefit

Many level-term policies include a built-in terminal illness benefit—paying out early if you're diagnosed with a condition expected to lead to death within 12 months. This can help ease financial stress during your final months.

Waiver of Premium

Optional add-on that ensures your cover continues even if you're unable to work due to illness or injury. The insurer pays your premiums for you after a waiting period.

Conversion or Renewal Options

Some policies offer the option to convert to a different type of cover (e.g. whole-of-life) or renew at the end of the term—without fresh medical underwriting. This can be useful if your health deteriorates later in life.

Trusts and Beneficiary Nomination

Writing your policy in trust can ensure the payout goes directly to your intended beneficiaries and avoids delays in probate. It may also help mitigate inheritance tax liabilities.

Level Term Cover As Mortgage Protection

Level term cover is the most appropriate type of mortgage protection policy for an interest-only loan.

However, decreasing term insurance is the cheapest solution for a “capital and interest” or repayment mortgage. However, the cost differences between decreasing and level term cover are generally low. There is a school of thought therefore, that level term cover could provide better value than decreasing term cover where an applicant wishes to leave a lump sum upon death.

The older you get, the higher the risk of a claim and the greater the surplus a level-term policy would leave. So, this arrangement would give someone adequate cover to repay a mortgage whilst young, but leave a sizeable nest egg for loved ones if they died towards the end of a mortgage term (which is the most likely claim scenario), for relatively little more than the cost of a decreasing policy that would leave little or nothing upon death.

It does present some challenges in terms of advice, as defining a specific level of benefit upon death is not possible, but for those with tight budgets, it is an interesting solution.