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How should you use Level term Life insurance?

Level term Life insurance is used to pay out a fixed amount should the life assured pass away whilst the policy is active. Here are a few simple examples of how people use level term insurance to protect their loved ones financially.

Debt

Let’s explore the example of an interest only mortgage. Let’s assume you have a £500,000 property with a £300,000 interest only mortgage with 20 years left to run. You will have a monthly mortgage payment to pay the interest only, but the balance remains unchanged.

A 20-year level term policy of £300,000 would be equal to the balance of the mortgage. In the event of unexpected death, a payment could be made so that your partner would be able to pay off the mortgage at any time they wish.

Legacy

In another example suppose you were to pass away before your children reached 21 years of age? You want to make sure there is £100,000 for them to spend on education, housing deposit etc.

If your youngest is 8 years old, you might opt for a 13-year level term policy written into trust so that the trustee of your choice can have some control of the funds and what they are to be used for.

Estate Planning

You have made a gift of assets 4 years ago and have identified if you pass away in less than 3 years there is some inheritance tax due of £30,000. A simple and cost effective 3-year level term policy for £30,000 would cancel out this liability.

So, as you can see, you don’t need have to have complex problems, or require £1m plus payouts. A little is better than none when it comes to financial protection and a term life insurance policy is often the first starting point.