What is Level Term Assurance?

Level term assurance is a policy where you set the lump sum you wish to be paid out after your death. This sum never varies due to external factors such as inflation; it is always a fixed amount. The policy is also set over a specific period of time, so there is only a pay out if you die within a fixed term if the policy does not lapse.

Level Term Assurance

Level term assurance is the cheapest form of life insurance because there is less risk to insurance companies that they will have to pay out. This makes it very affordable and level term assurance provides your beneficiaries with a lump sum in the event of your death. This lump sum never changes and your premiums also remain the same for the life of the policy.

However, the very fact that all the payments and final lump sum remain the same can put your loved ones at a disadvantage. Generally, as the years go by, inflation goes up. This means that a lump sum you specified twenty years ago probably will not have the same value now as it did them. So your beneficiaries may actually only receive a very small sum in real terms.

The Right Kind of Policy

Before taking out a level term assurance policy, it is worth checking to see if it really is the right kind of assurance for you. Most insurers claim that if you have no dependents, you probably do not need life assurance at all, and should concentrate on your savings or other investments. However, you may want to set aside some money to pay for a funeral, so a small, relatively cheap from of life assurance may be the best way to go.

If you do have dependents, you may want to explore other forms of assurance to get the most out of your investment. The shorter the term specified on your life assurance policy, the cheaper it will be as there is a much lower probability that you will die within such a short timeframe. Unless of course you already have a terminal illness, in which case there may be restrictions on your policy or very high premiums.

A renewable term is like a level term but shorter. It is often for a period of five years and is renewable, if you so wish. However, the lump sum guaranteed upon death cannot be increased and each time you renew this policy, your premium payments will also increase as you become older and thus more at risk of death.

Another popular and flexible form of term life assurance is a convertible term. This is initially set like a level term assurance policy, but it can later be converted into a whole of life policy. This can be very useful if you do not have great financial resources right now but expect your circumstances to improve in the future. One good thing about this type of policy is that if you choose to convert from level term to whole of life, you often do not have to give any more medical information.

A whole of life assurance policy is the most expensive as there is a one hundred per cent probability that the insurance company will have to pay out in the event of your death. Because the odds are so high, insurers save the highest premiums for this type of policy. However, some insurers only require you to pay whole of life assurance premiums until you are sixty-five years old or older, but the sum paid out remains the same. They can therefore be more cost effective than they seem.

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