In terms of life insurance there are two types (level and decreasing) – the term being how long you wish to take out the policy (in years) for and how much benefit will be paid out by the policy. In this article I will be outlining 'level term assurance' (LTA).
Level means simply the amount of cover taken out at inception remains constant throughout.
Example: Mr White takes out a £ 300,000 level insurance for 10 years. If Mr White dies within the 10 year period the policy will pay out £ 300,000 to his estate.
When should you use LTA assurance?
There are two main reason to use 'level' Insurance:
1.If your mortgage is on interest only the amount you need to repay will remain level so if you hold a £ 140,000 interest only mortgage over 20 years you should consider taking out a £ 140,000 LTA insurance policy. This would ensure the mortgage could be repaid at any time during the 20 year life of the mortgage.
2.If you taking out insurance to cover your family again you should consider as a minimum a LTA – this would mean you can be certain of the benefits your family would receive on your death.
There are a number of options to consider when taking out a life policy and I would suggest using the services of a local specialist. In real terms the LTA is simple – you die the policy pays out (in most cases) a lump sum. However the amount of cover and the specifics of the policy are issues were advice should be sought.