Level term assurance will pay out a one off lump sum if you die during the duration of your policy. You choose the amount you want to be covered for and how long you want to be covered, then pay a set premium every month. The lump sum remains the same throughout the duration of the policy.

Often this type of cover also pays out early if you are diagnosed with a terminal illness, and usually there are options to add on other types of cover, like critical illness. However, level term assurance policies will only pay out once within the agreed time, so if the policy pays out due to a critical illness or terminal illness claim, the policy and cover will then end. This type of policy has no cash-in value at any time.

Pros

• You decide how much cover you want, for how long and have the option of adding other types of cover. However, you only have the option to add other types of cover at the start of the policy.
• It’s one of the cheapest options for life insurance because the cover is only for a fixed period. 
• Monthly payments stay the same throughout the policy.
• The lump sum pay out is free of income tax and capital gains tax and whoever receives it can use it how they like. Whether they choose to pay off the mortgage, do up the house, or take a break, it’s up to them. However, this lump sum may be subject to inheritance tax if it is not set up under a suitable trust.

Cons

• If your health is poor when the policy starts, it might be very costly to obtain cover, or you might be refused cover altogether.  
• If you don’t make a claim while the policy is in force, the cover ends and you don’t get any money back.
• There may be a minimum and maximum amount of cover you can take out, so check you can get what you need.

• There is no cash-in value at any time.

This product could be for you if you want to leave a fixed lump sum, should you die while the policy is in force. This amount could be based on the amount you need to ensure your loved ones are financially secure if you die.

It may also be a useful product if you have an interest-only mortgage, as the amount you owe on your mortgage will remain the same over the mortgage term.

This product may also be suitable for writing under trust if you want to keep the death benefit out of your estate for inheritance tax purposes.

If you want to research the market for yourself, take a look at insurance companies, banks, building societies and other financial companies. You can also usually buy direct through the Internet or over the phone, or you can speak to a financial adviser.

Think about it – Make sure you’ve thought carefully about what you want and taken into consideration any cover you already have or cover you are entitled to from your employer. You don’t want to be paying for more cover than you need.

Check the small print – Make sure you understand what is and isn’t covered as these can vary from company to company.

Consider all your options – Ask what’s available and make sure you understand all the extra options.

Shop around – Different companies offer different levels of cover at different prices. Make sure you shop around and that the cover you choose is the most appropriate for your needs and circumstances.

Writing in trust – Consider having your policy written under trust to ensure that you minimise the amount of inheritance tax your beneficiaries may have to pay.

If unsure, get advice – If you’re unsure of what to do next, speak to a financial adviser who will be able to help you make the right choice.