Level term assurance policies have a known level of cover that will be paid out in the event of death within a known period of time.
Premiums remain level throughout and should you survive the policy term, there will be no benefit. As this type of contract only provides cover in the event of death there is no surrender value, so if you stop paying the premiums at any time, your cover will cease.
Premiums are based on your personal circumstances but the main areas for consideration by an insurer are your age and state of health. The older you are, the higher the premium will be. Similarly, if you have or had a serious ailment the insurer may seek to charge you more or in some cases be unwilling to cover you at all. Higher levels of cover and longer policy terms all increase the cost as will the fact that an individual smokes.
Essentially, level term assurance is cheap cover on your life for the benefit of your family or for your business, but there are limitations to it.
As it is a fixed-term, there is no flexibility and you will be unable to increase cover or extend the term. Should you, therefore, find yourself ill at the end of the term you may be unable to obtain further cover.
There is no investment element to the policy, and your sum assured will take no account of inflation.
Eligibility
You must be aged 18 to take out a life assurance contract.
Taxation
The proceeds of the policy will be paid out free of income or capital gains tax. A trust may be used to ensure the proceeds of the policy are paid to your chosen beneficiaries and to avoid being included in your estate for inheritance tax purposes.
All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs’ practice. Levels and bases of tax relief are subject to change.
Risk considerations
There are a number of risk considerations that need to be taken into account. It is important that you are aware of these.
- If you stop paying premiums your cover will cease
- As the plan is for protection rather than investment it will not acquire a surrender value at any time
- Failure to disclose any requested or relevant information may adversely affect any future claims
- Payment will not be made for a critical illness claim arising from an excluded condition (relevant to Critical Illness only)
- You may have to increase contributions to maintain your desired level of cover or reduce cover to maintain your chosen level of contribution
- At the end of the term selected, the cover will cease and no further benefit will be payable
- The present tax-free treatment of the policy benefits may change
- If this plan is linked to a mortgage or loan, depending on the interest rate of the mortgage or loan and the interest rate on the decreasing term plan, the policy benefits may be less than the outstanding debt in the event of a claim
- If any relevant information provided, when applying, is not disclosed accurately and honestly, this could result in any cover offered becoming invalid and / or may result in the non-payment of any future claims
- If this policy is to replace any existing policy offering the same type/level of cover, you must not cancel any existing policy until the new policy is in force
