What is level term life insurance?

Level term life insurance is life cover that pays out if you pass away during the term of the policy. The amount of cover stays the same throughout the term. It’s a simple and cost-effective option for anyone wanting to leave financial support for their loved ones.

It’s often used to give peace of mind that major expenses can still be covered if you’re no longer around. Premiums are typically fixed for the life of the policy, so you’ll know exactly what you're paying each month, making it easy to budget over the long term.

One reason some homeowners choose a level term policy is to cover an interest-only mortgage. The amount it pays out stays the same over time, just like the amount owed on your mortgage. This contrasts with a decreasing term insurance policy where the sum assured reduces in line with the balance on a repayment mortgage.

Why choose level term life insurance?

Level term life insurance offers straightforward, dependable cover that doesn’t change over time. Whether you're protecting your family's lifestyle, securing an interest-only mortgage, or planning for your children's future, this type of cover can provide financial stability when it's needed most.

One of the main reasons people choose level term insurance is predictability. The payout amount remains the same from day one to the end of the policy, and monthly premiums are typically fixed, too. That makes it easier to plan long-term without worrying about rising costs or fluctuating benefits.

This kind of policy is also flexible in how it can be used. The tax-free payout can help loved ones manage living costs, settle debts, or simply stay financially secure while adjusting to life after a loss.

Key benefits of level term life insurance:

  • Family protection: Can help cover bills, school fees and other expenses.

  • Mortgage protection: Helps your family pay off the mortgage.

  • Lower cost: Typically cheaper premiums than whole life insurance.

  • Simple and straightforward: No frills – just focused financial protection.

What happens when the policy pays out?

When an insurance policy pays out, where the money goes depends on the type of policy you have and who it's set up to benefit.

If you take out a joint life policy, the payout usually goes to the surviving policyholder when the first person dies. There’s no second payout when the other person dies. So in the case of a level term policy for mortgage cover, it would mean that they have the money they need to clear the mortgage.

However, there are other types of joint policy:

  • ‘Dual life’ policies are available that pay out when the first person dies, but life cover still stays in place for the surviving partner.

  • There are also joint policies that pay only on ‘second death’, although these tend to be used for inheritance tax planning.

With a single life policy, the payout typically goes to your estate, which can delay things a little due to probate. However, you can name a specific beneficiary or have the policy written in trust to potentially speed things up - and have more control over who receives the money.

What does level term insurance cover?

Typically covered

As long as you keep paying your premiums and you pass away during the term, your insurer will pay out the sum assured. Some policies also come with standard or optional extras, including:

Terminal illness cover: Typically pays out early if you’re diagnosed with a condition that’s expected to be fatal within a certain time (e.g. 12 months).

Critical illness cover: Pays out if you are diagnosed with a serious illness covered by the policy.

What isn’t covered?

While level term life insurance offers valuable protection, there are a few situations where a claim may not be paid:

  • Missed payments: If you stop paying your premiums, your cover could end.

  • Suicide: Many policies exclude death by suicide within the first 12 months.

  • Fraud or non-disclosure: If you aren’t honest and accurate when applying, the insurer could refuse to pay out.

  • Excluded health conditions: Some policies may include exclusions based on your medical history, for example if you have a pre-existing condition.

  • Outliving your policy: If you survive the policy term, the cover ends and there’s no payout.

Other events may not be covered, such as death due to war or participation in extreme sports. Please see each policy’s exclusions and limitations: always read the small print to make sure you understand the terms and conditions.

How much does level term insurance cost?

One of the big benefits of level term insurance is how cost-effective it can be. It’s typically cheaper than whole life insurance, since you are setting up cover just for a set period.

Your premium will still depend on a few key factors:

  • Your age: The younger you are when you take out a policy, the cheaper your premiums will usually be.

  • Your health: Existing health conditions typically mean premiums are higher.

  • Your lifestyle: Lifestyle choices such as smoking can push premiums up.

  • Length of term: A longer policy term often means higher premiums.

  • Your occupation: Some occupations make life insurance more expensive.

  • The ‘sum assured’ (typically matches the size of your mortgage): A policy that pays out £250,000 will cost more than one for £100,000.

  • Added benefits: Adding benefits such as critical illness cover will typically increase the premium.

  • Single vs joint life: A joint policy is usually cheaper than taking out two single policies (but remember that it will typically pay out just once, so this offers less protection than two separate policies).

You may find your own quotes come in cheaper or more expensive than average premiums. The best way to find out how much cover would cost for you is to compare quotes from leading insurance companies.

How to keep costs down

Term insurance can be one of the most affordable types of life cover, but there are a few clever ways to make it even more budget-friendly:

Start as early as you can: The younger you are when you take out a policy, the lower your premiums are likely to be.

Choose the right term and level of cover: If you are taking out a policy to cover your mortgage, you just need to align it with your mortgage size and term.

Be healthy: Insurers typically offer lower premiums to people who maintain a healthy lifestyle. Stopping smoking, eating well and managing any chronic health conditions may trim pounds off your premiums.

Consider a joint policy: A joint life insurance policy is often cheaper than taking out two separate policies – but coverage ends after the first payout.

Look at different premium options: A fixed or guaranteed premium policy might be better for budgeting and long-term cost control than a reviewable premium policy where premiums can increase.

Review your cover: If your life circumstances change you might not need as much cover. You may be able to amend your policy, or cancel it and take out a cheaper one.

Shop around and compare quotes: Each insurer has its own pricing model, so it’s essential to compare quotes before committing to a policy. Also, some providers offer special deals, like free terminal illness cover. Don’t settle for the first quote you receive; it’s always worth exploring your options.

By making a few smart choices, you can reduce your premiums without compromising on the protection you need.

Things to consider

Level term life insurance can offer real peace of mind. But it’s important to understand how it works and what to watch out for, so you can choose the right cover with confidence:

Match your policy to your mortgage and other needs: People tend to choose level cover for interest-only mortgages and decreasing term insurance to cover a repayment mortgage. But a level plan can be used for repayment mortgages, if you would like the reassurance of money left over from the payout after the mortgage is cleared.

It only covers a set period: If you live beyond the policy term, there's no payout and no return on the premiums paid. You may prefer whole life insurance if you want cover for your entire life.

No cash value: Unlike some whole life policies, decreasing cover doesn’t build up savings or investment value.

Keep up your payments: If you miss a premium payment, your cover could stop. Some policies offer a grace period, but if premiums aren’t paid, the insurer might cancel the policy or refuse a payout.

Insurers don’t always pay out: There are situations where the insurer might not pay out. These include if you provide incorrect or misleading information during your application, and if death occurs during the exclusion period for specific circumstances (like suicide within the first 12 months).

If you’re unsure about whether decreasing insurance is right for you, seeking advice from a qualified financial adviser can help ensure you’re making the right decision.

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Answering your questions about level term insurance

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Page updated on 16th October 2025, Reviewed by Richard Groom