Level Term Life Insurance (LTA) Explained

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Guide contents:

What is level term life insurance?

What does level term insurance mean?

Level and decreasing term: what's the difference?

What happens when a policy matures?

Level term life insurance with critical illness cover

Which is better: term or whole-of-life insurance?

How much does level term life insurance cost?

What about inflation?

How do I get the best level term life insurance?

What is level term life insurance?

Understanding life insurance for the first time can be quite complicated, especially with some of the more confusing terms that people in the industry tend to use. Jargon like ‘sum assured’, ‘level term assurance’ and ‘decreasing term insurance’.

At Quick Quote Protect, we don’t believe in making things complicated and we are here to help you understand everything you need to about life insurance.

What does level term insurance mean?

(and is there a difference between that and level term assurance?)

First, a quick understanding of terms. There is a subtle difference between the words insurance and assurance – the first refers to things that might happen, the second to things that will happen eventually. In the life insurance industry, because death is something that we all have to face at some time, the word assurance is often used instead of insurance. This leads to acronyms like LTA for level term assurance when we discuss insurance – it’s complexity where none is needed.

For the most part, just assume that assurance and insurance are two words for the same thing.

LTA (level term assurance) is an insurance policy that provides a set sum assured (the amount of money your beneficiaries will receive upon your death) if you die within a defined period (the term).

The word level is used because the sum assured remains the same.

The word term is used because the policy covers you for a set length of time.

What is the difference between level term and decreasing term life insurance?

Decreasing term life insurance (DTA), provides a sum assured that decreases over time if you die within a set term. The term part is identical to LTA, but the decreasing part means that the later into the term the claim is made, the less the policy will pay out.

How does decreasing term insurance work?

DTA is typically used to tie to a mortgage. As time goes on, the remaining amount left to pay to clear the mortgage lowers and so not as much insurance is required to cover it.

The DTA policy takes this into account and is designed to always cover the mortgage should it be needed. By having a decreasing policy, the overall financial risk is lowered for the insurance company and they pass that benefit on to you in the form of smaller premiums (the monthly amount you pay for your policy).

In short: DTA is cheaper than LTA and is designed to cover repayment of your outstanding mortgage if you pass away within the agreed term.

What happens when a term life insurance policy matures?

With insurance, the word matures is used to indicate that the policy has come to an end.

In the past, many life insurance policies were tied to investment opportunities, meaning that your money wasn’t just used to provide cover, but also formed part of an overall investment pool. When an investment-tied policy matured, you could have benefited from an additional windfall lump sum.

In modern life insurance, this practice is very rare and only ever forms part of a whole-of-life (WOL) insurance policy - that doesn’t have a set term.

Level term life insurance policies provided by UK insurers today do not have an investment component and so the maturing of the policy simply indicates the end of the term. The cover is finished, and no more payments are required. If you still wish to have life insurance at this point, you will need to take out a new policy.

By not side-lining any money for investment purposes, modern term life insurance policies are easier to understand and have far cheaper monthly premiums.

What is level term life insurance with critical illness cover?

Level term insurance provides a substantial lump sum to your beneficiaries upon your death but does not offer any support should you become severely injured or critically ill before that time.

Critical illness cover is an additional policy that provides insurance for you should you suffer a life changing situation that puts you permanently out of work.

By taking out a combined life insurance and critical illness policy, you will make a saving on your premiums.

Which is better – term or whole-of-life insurance?

Whole-of-life (WOL) insurance is a policy that simply doesn’t end and is guaranteed to pay out upon your death. A term policy will end (often when you reach retirement age) and has no guarantee to pay out.

It is easy to feel that when you reach the end of your level term insurance policy, that somehow the money you spent on it has been wasted, and you have lost out in some way. At Quick Quote Protect, we prefer to think of it in the positive way that you are still alive, and we count that as a significant win!

A level term insurance policy is there to provide financial security should the worst happen during your working life (with a start and an end date). During this time, you are financially responsible for significant outgoings – mortgage payments, supporting your children into their adulthood, credit card and loan debts, car finance and more. Leaving your family without a sizeable sum from after you pass away could massively impact their lives, adding a huge extra worry on top of the depth of grief they are feeling.

Level term policies are designed to end when you no longer have such financial pressures. Typically, the children have become adults and are financially independent, the home is paid for in full and other debts have dwindled away. The large sum assured on the level term policy would be considered ridiculous as a payout during later years of retirement and the cost of the premiums would be an unnecessary outgoing.

Whole-of-life policies tend to be for significantly smaller amounts, often simply enough to cover the cost of your funeral. Larger whole-of-life policies also exist to help with inheritance tax should your estate be sizeable.

Because a WOL policy has a guaranteed payout, the relative cost of the premiums when compared to similar term policies are much higher.

Rather than looking at which is better, it is more sensible to look at which policy fits your requirements.

Level term insurance is better for:

• Paying off a mortgage
• Providing for dependent children
• Covering the cost of higher education
• Removing outstanding debts

Whole-of-life insurance is better for:

• Covering funeral costs
• Offsetting inheritance tax for heirs

How much does level term life insurance cost?

The premiums for level term life insurance are calculated based on two main factors:

• Your age
• Your health

Most life insurance premiums are set at the start of the policy, so if you are young and healthy when you first take out a level term insurance policy, then you will enjoy a very low premium throughout the course of that cover. We always recommend getting a life insurance policy as soon as you can for this reason.

Factors such as being overweight and smoking have a significant impact on the cost of the monthly premium, and when looking at the average life insurance cost, you need to factor your own health and lifestyle into account before estimating your own cover.

Better still, of course, give us a call and we can give you accurate level term insurance quotes over the phone.

Level term life insurance in the UK can cost as little as £6 per month for over £100,000 worth of cover – of course, that’s for a healthy young person, but it does show the small premiums that are possible if you consider life insurance early. As mentioned earlier, that £6 figure will remain the premium cost for the entire length of the term, so even taking up chain-smoking and competitive pie-eating in your mid-30s isn’t going to have a knock-on effect on your insurance costs. (That said, we do not recommend taking up either activity!)

For a healthy man in his early 40s, looking for £200,000 worth of cover to take him to retirement, level term life insurance could be as little as £20 per month. While it’s a jump from the £6 student level, it’s still more than affordable.

What about inflation? What will my level term life insurance policy be worth to my children?

It’s true, without taking inflation into account, what seems like a huge sum of money today might be little more than the deposit on a broom cupboard in 30 years-time. As an example, in 1978 the average price of a home in London came in at under £15,000! You could have taken out a life insurance policy for £30,000 back then thinking both your children would have enough for a house if anything happened, only to find they can barely cover rent for a year each.

It is possible to index-link your life insurance policy, tying it to the consumer price index (CPI) and making sure the sum assured rises with inflation. This will mean that your premiums are also tied to the CPI and will grow each year alongside, but the end result is usually more than worthwhile.

For more information on index-linking, take a look at our article What is Index-Linking in Life Insurance? or call us for more advice.

How do I get the best level term life insurance?

At Quick Quote Protect we work with the UK’s top insurers to provide you with the best life insurance options available. We cross-reference data and have years of experience in finding the level term life insurance that fits.

Our wide range of providers means we have access to all the best life insurance deals, whether it’s just a case of finding the cheapest premiums for you, or if you have specific needs such as cover that includes your love of extreme sports or a combined level and decreasing term life insurance policy with critical illness cover for your entire family!

With passionate advisors who take understanding life insurance to a whole new level, we can not only tell you the best deals, but actively help you make a choice by listening to your personal circumstances and needs. We’re friendly, full of information and fast!

If you have any questions, or if you’re ready to get some competitive life insurance quotes, give Quick Quote Protect a call today, or fill in our short contact form to have someone contact you at a convenient time for you.