What is Level Term Assurance?

Level term assurance is a kind of life assurance that gives protection in the event that you die within a specified time period, or term.

It is called level term because the lump sum payout is defined from the start of the policy and doesn't change, it stays level.

So, for example, you could take out a level term assurance policy which pays out a fixed £200,000 if you die within the next 15 years.

Level term assurance is important if you have children or a spouse or partner who depends on your or would suffer financially if you died. It could be that your spouse or partner doesn't work or would have to give up full-time work to look after young children.

You can choose to have a joint policy as a couple. These pay out on the first death but then end so only choose this option if you didn't need anyone to benefit from the death of the second partner.

Any payout becomes part of the deceased's estate and therefore potentially subject to inheritance tax. Make sure that the policy is written in trust, so that the proceeds go directly to your dependants and they don't have to pay inheritance tax. Your policy should include this option and facility and there should not be any additional charge.

How much cover should I get?
You will want to consider how much money your dependents would require to live to a comfortable standard, and also take into account the need to cover any debts you might leave.

As with any type of insurance policy you pay more as the cover gets higher. But if you can't afford the cover you'd ideally like, you'd be well advised to take out some cover if you have dependent children or a partner. You should however check if your employer provides death in service benefit as this could mean that you won't need as much cover as without it.

Like standard life insurance, your cover will be cheaper if lifestyle factors work for you. Premiums will be cheaper the younger you are, if you're in good general health, don't smoke and don't have a dangerous occupation.

Even you think a joint policy would be a good idea make sure you get quotes for individual policies, in case they are cheaper.

How long should cover last?
The length of term you opt for will be down to your situation but general advice is that level term assurance should cover any children until they leave full time education or a partner until they reach pensionable age. You don't need to opt for a round number of years. If 19 years is all that is needed then take out cover for that term.

Level term assurance policies won't have any cash in value and end when the policy's term ends or if premiums are not paid.

The Financial Conduct Authority (FCA) does not regulate taxation advice.

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This article (What is Level Term Assurance?) is intended to provide a general appreciation of the topic and it is not advice.

For more information please contact Nurture Financial Planning Ltd on 01603 673502 or email ask@nurturefp.co.uk and we will be happy to assist you.

Article expiry: 05 Apr 2018