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What is level term life insurance?

What is level term life insurance?

Whole of life insurance is a case where the insurer pays you a lump sum of money to your family when you die.

This is unlike term insurance which pays only when the insurance holder dies within a specific time frame referred to as ‘term’. Whole life pays regardless of when the holder dies.
Whole life can be more expensive than level and decreasing term policies since the insurer knows they won’t have to pay out.

How it works

You pay a monthly premium to the insurer and the insurer pays out a fixed amount of money to your loved ones when you die. You are at liberty to choose the amount of money to the pay for the policy but the higher the amount of cover, the more you pay the premiums.

Whole of life insurance pays out only when you die, it doesn’t matter when and this then can be more expensive than the traditional term insurance.

Types of whole of life insurance

  • Limited payment term: There is an agreement between you and the insurer on when the monthly premiums should stop.
  • Non-renewable: There will be no changes to your premiums but will usually pay for rest of your life until you die. This does not change the sum assured.
  • Renewable: Your premiums are reviewed at specific points in the course of the policy. Simply because the policy is linked to inflation or retail price index or maybe the part of the policy includes a savings or investment portion.

Whether it is worth it

You can have peace of mind just by knowing there is a life cover somewhere. By knowing that your family will have some financial security when you die is a great joy.

The following are the reasons why you should buy a whole of life insurance cover.

  • It can be a guaranteed inheritance
  • Helps to pay for funeral expenses
  • The lump sum helps in care to the loved ones, disability and childcare.
  • It pays off loan and other owed debts
  • Helps in paying the inheritance tax.

Because of its payout guarantee, this is one reason why people choose whole of life insurance cover.

Inheritance tax planning

The Whole of Life Insurance can help out in paying for part or your entire inheritance tax bill.
Your inheritable estate is charged the inheritance tax of 40% over the threshold of Inheritance tax is charged at 40% of your inheritable estate over the threshold of £325,000 as by the year 2014. Unless placed in trust, life insurance pays out just like any other asset forms part of your estate.

Payouts from your life insurance policy will be protected from inheritance tax if you write up your policy into a trust. Claims from tax written in trust are usually paid before the probate is granted, and this makes the process of claiming to receive the money much faster. Insurers will typically help their customers to put their policies into trust by completing a ‘trust form’ this services obviously comes with a cost.

In case you choose not to put your policy in a trust, then it’s possible that any money owed to the credits at the time of your dealt might be paid before your beneficiaries are able to receive any proceeds.

Whole of Life policy can be used to offset inheritance tax when placed in a trust.

How much is needed?

In case the purpose of your Whole of Life Insurance is to cover the impending tax, then the best place to start by calculating how much your estate is liable. In case you just need to leave a lump sum to your family, then you can choose the amount you wish to the insurers’ maximum.

If you wish to insure your life for over £650,000, then you need to answer some of these basic financial questions.

1. How much does it cost?

Before providing the cost, the insurer would like to know more about your lifestyle, medical history, whether you smoke or not and you age.

Your covers stops immediately you stop paying for the monthly premiums and unless otherwise stated, your claim will not be able to pay out the money that had been paid to policy.

2. Can I be refused whole of life cover?

  • You can be refused by an insurer to provide cover and some circumstances, may be refused to be accepted. The following are the reasons in which you can be refused.
  • If you and your family suffer from certain medical conditions or have been sick in the past.
  • If you have taken parts in extreme sports or are in an occupation that puts you at a risk of being injured or even death.
  • If you are beyond the maximum insurable age.

Alternatives to whole of life insurance

The alternative to the Whole of Life Insurance is the level term life insurance which provides the same or much higher level of cover for a fraction of the cost.

The main difference is that this type of cover will pay you only if you die within the term of the policy. This makes the level term insurance less suitable for inheritance tax planning.

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Quotes shown are for a 40 year old male who doesn’t smoke. Policy is £100,000 life insurance cover for ten years with a fixed premium. Example is for illustrative purposes only and was correct on 21/11/2016.

FREE impartial advice from the experts

  • Life Insurance

    The most common form of protection, ordinary term life cover pays a lump sum to your family if you die within a certain time-frame. Most policies will also pay-out if you’re diagnosed with a terminal illness and have less than twelve months to live

  • Critical Illness Cover

    Critical Illness Cover provides a cash lump sum if you suffer from a range of serious conditions within a set time-frame. The money is normally used to pay the bills and provide financial security while you’re on the road back to health

  • Income Protection

    If something serious happens to stop you working - for months, years, or even for life – you’ll want to know you have financial security and that the bills are paid. Income Protection gives you just that, paying a percentage of your income all the time you’re unable to work.

  • Private Health Insurance

    The NHS is groaning under the weight of the UK obesity crisis and newer, more effective medical treatments for a range of illnesses often aren’t available. Private medical cover makes ‘going private’ much more affordable – giving you access to more treatments, shorter waiting lists, and first-class care.

  • Relevant Life Cover

    Most company directors are savvy enough to have life insurance, but very few realise they can save up to 53% by taking advantage of a Relevant Life plan.

  • Group Life & Health

    Group Life and / or Health Cover is the most cost-effective way to provide peace of mind and financial security for the families of your employees.

  • Key Man Cover

    Key Person Insurance - often called Key Man Cover - is an insurance policy bought and owned by a business to protect its own interests. Cover is provided in the event that an important staff member is suddenly unable to work through critical illness and/or death.

  • Shareholder Protection

    Shareholder Protection Insurance is designed to give you peace of mind in the event that a shareholder in a Limited Liability Company, a member of a Limited Liability Partnership (LLP), or a partner in a partnership dies or is diagnosed as critically ill.


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