Level term life insurance will pay out a set lump sum if you die within a specified period.

This could help your family maintain a lifestyle they enjoy or to help support them in the future in the event of your death.


How does it work?

A level term policy will pay out a set amount of money if you die while the policy is active. You pay a monthly or annual premium in order to keep the cover in place.

The money will provide security for your family. It may help them pay off the mortgage on your home, for example, or cover their ongoing living costs.


Are there any disadvantages?

If you buy a level term policy, the sum paid out is fixed. This means that it does not rise in line with inflation. Inflation is the name for the general increase in prices over time.

£200,000 of cover would provide a lot of security if it was paid out today. In 20 years’ time, it will probably still be regarded as a lot of money, but it will buy a lot less than it would today.

Level term policies are also more expensive than decreasing term policies, on the whole. Find out about decreasing term life insurance.


Placing a policy in trust

If a person with life insurance dies, the money will normally be paid into their ‘estate’. This is the legal name for all of their possessions, money and debts.

After death, the estate is then distributed according to the person’s will.. The estate then will be subject to inheritance tax.

Inheritance tax is paid at a rate of 40% on anything above a threshold of £325,000. If a life insurance policy is placed in trust, then it doesn’t form part of the person’s estate and is not taxable.

If a life insurance pay-out might push the value of the estate over that threshold, it’s worth considering placing the policy in trust. This would mean that inheritance tax is not payable on it. Find out how to place a policy in trust.