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Level term life insurance

A level term life insurance policy is arranged to provide cover of a fixed sum for a specific period of time, often in line with an interest only mortgage.

This is because an interest only mortgage will have a fixed balance outstanding throughout the term of the mortgage and therefore reducing term insurance or decreasing term insurance is not usually suitable.

However you may choose to arrange a level term life insurance policy with a capital and interest mortgage in order to leave a surplus if the policy is claimed on.

Other uses for level term life insurance are for protecting against a known inheritance tax liability for your children or providing a fixed sum for funeral expenses etc.

However because it is a term insurance policy it should be remembered that there is no investment element and therefore if you live beyond the term of the policy there will be no remaining value.

This is the difference between life insurance and life assurance where an assurance policy will always be paid because it runs for the whole of life.

Therefore life assurance is usually an investment product which may have either guaranteed or equity linked rewards.

Level term insurance- typical cover options

Level term life insurance will usually be available as either sole or joint cover.

You may arrange this type of life insurance for anyone in whom you have an insurable interest be that your spouse, business partner or employee for example.

Joint policies can be arranged to pay on either the first or second death.

You can choose the level of benefit you require or base the benefit around the monthly payment you are willing to make.

The term is set when arranging the policy, and if there is not a definite term in mind a renewable term insurance may be more suitable.

Indexation is an option that allows you to arrange for the sum insured to increase in line with inflation

either following indicators such as the retail prices index or by a fixed percentage.

This will have the benefit of ensuring that your cover does diminish in value relative to inflation over time.

Waiver of premium provides the option to stop paying premiums in the event of a period of ill health after a specific amount of time for example 6 months.

This could be very useful for example in the case of a critical illness where you may be unable to work for many years prior to the policy paying its benefit in the event of death.

There would also usually be the option to include critical illness cover on the policy and many insurers will also offer the option of income protection to repay mortgage costs etc in the event of long term ill health.

It should be considered however whether redundancy cover may be required as this may mean a specific accident sickness & unemployment insurance policy may be more suitable.

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