Level Term Life Insurance

Level vs. Decreasing: What's the Difference?

It is important to select the right structure tailored to your individual circumstances and financial needs.

Decreasing Term (Often used for Mortgage Protection)

• The Payout: Reduces over time, typically decreasing roughly in line with the balance of a standard repayment mortgage.

• The Goal: Specifically designed to help clear or reduce a repayment mortgage balance if you pass away during the policy term.

• The Cost: Generally features lower premiums compared to level term options, as the insurer's potential payout reduces over the policy term.

Level Term (Often used for Family Protection or Interest-Only)

• The Payout: Remains constant throughout the policy term (for example, a policy with £200,000 of cover on Day 1 will still provide £200,000 of cover in Year 20, provided all premiums are fully maintained).

• The Goal: Designed to help pay off an outstanding interest-only mortgage, or to clear a repayment mortgage while leaving an additional cash sum to help your family cover lifestyle costs, school fees, or other personal debts.

• The Cost: Features higher monthly premiums than decreasing cover because the provider's potential payout amount remains constant throughout the entire term.
  

Who is Level Term Insurance For?

1. Families with Dependent Children

If you were to pass away during the policy term, clearing the mortgage debt is an excellent step—but your family may still face ongoing expenses like council tax, utility bills, and day-to-day living costs without your income. A Level Term policy is designed to provide a set lump sum that can be used to help clear outstanding house debt while establishing a potential financial buffer to support your children as they grow.

2. Interest-Only Mortgage Vehicles

If you have chosen an Interest-Only mortgage structure (which is common for Buy-to-Let investors), the core capital debt does not reduce over time. Because the loan amount remains constant, a decreasing term policy may not align with your outstanding liabilities. Level Term cover is typically required to help ensure that the full original loan balance can be covered if a valid claim is made during the term.

3. Assisting with Future Planning

Level Term insurance can be an effective tool if you want to ensure that specific future costs are supported regardless of when you pass away during the policy term. This capital can be earmarked to help your family cover future goals, such as university fees or helping children take their first steps onto the property ladder.

The "Trust" Advantage

This is where an expert broker adds real value.

If you arrange an insurance policy online without advice, the potential payout can often form part of your legal estate. This can introduce specific structural complications for your beneficiaries:

• Probate Delays: Your family may have to wait for the formal grant of probate to be issued before the insurance provider can release the funds, which can sometimes take months.

The Guided Solution: Policies Written in Trust

We can guide you through placing your Level Term policy into an appropriate Trust structure:

• Efficient Capital Distribution: The money is designed to bypass the lengthy probate process, allowing the provider to pay your beneficiaries directly and efficiently, supporting immediate household cash flow when it is needed most.

Optional Policy Considerations

You can tailor your Level Term policy to suit your individual budget and requirements:

• Critical Illness Add-on: You can choose to combine Life Cover with Critical Illness Cover. This structure means the policy is designed to pay out a lump sum upon or a monthly benefit to fully replace the income amount up retirement the diagnosis of a specified serious illness or upon death—whichever event occurs first during the policy term.
  ‘The cost of this insurance depends on several factors, such as your age, where you live and your occupation. As a result, the cost you will pay is based on your own circumstances.’

• Terminal Illness Cover: Many of the policies we explore include this feature as standard. If you are diagnosed with an advanced illness and have a life expectancy of less than 12 months, the provider may pay out the death benefit early, providing financial support to help you manage your affairs.

• Inflation Protection (Indexation): You can opt to have your cover amount increase over time, often linked to an inflation index such as the Retail Prices Index (RPI). This option is designed to help your coverage maintain its relative purchasing power in the future, though your monthly premiums will typically increase alongside the cover.

Protection policies typically have no cash-in value at any time. If you stop paying premiums, your cover will cease, the policy will lapse, and you will not receive any money back. Conditions and exclusions will apply depending on the specific provider and policy chosen.

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I J Mortgage Solutions, 17 Blackley Close, Warrington, WA4 1JA

Contacts

0330 133 2620
info@iijmortgages.co.uk

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