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Is A Level Term Life Insurance Policy Right For Me?

There are a number of reasons why you should purchase life insurance. It could be to cover large debts that would cripple your loved ones should anything happen to you. Or maybe you have an army of small children, so want the peace of mind that they will be looked after and provided for in your absence. Whatever the reason, there’s undoubtedly a life insurance policy out there that can be tailored to your needs. So how do you know which one is right for you?

The simplest form of life insurance is term assurance. This is where you choose the amount you’d like to be insured for and how long you’d like the policy to last. If you die during the period of cover then the policy will be paid out to your beneficiaries. However, if you don’t die, the premiums that you’ve paid will not be returned to you. Because this type of policy effectively expires, the premiums are typically lower than those of policies that cover you for your whole life. 

So, what is level term life insurance?

Life assurance can be split into two categories. One of them is level term life insurance. With this type of cover, the payout remains the same through the policy. Normally, the premiums that you pay will also stay the same.

For example, you could choose to have a policy term of 30 years, with £75,000 being the amount of cover. Then, if you die within those 30 years, you will receive the £75,000. It doesn’t matter if you die the year after you initially took out the policy, or the year before the policy expires, the payout remains £75,000. 

Who is it most suitable for?

This type of life insurance policy is popular with people who have mortgages, and it is common for the policy term to cover the same length of time as the mortgage. This gives them the peace of mind that their family will be able to keep up with mortgage payments should anything happen to them.

Alternatively, someone may choose to take out a level term life insurance policy because they want to leave a certain amount of money for their loves ones. This could be an amount that specifically covers certain debts, or simply be a number of their choice.

A level term policy is also a good option for people who want a life insurance policy but don’t want to worry about increasing premiums. That’s because most level term life insurance policies come with guaranteed premiums, which means payments will stay the same throughout the entire course of the policy’s term. Other types of life assurance have premiums that can change based on numerous factors, such as the insurance market and inflation, so a level term policy is a way of protecting your cover from these external factors. This guarantee often causes people to take out policies for long terms, so they don’t have to worry about the cost of getting life insurance for seniors over 70.

Things to keep in mind

While there are many advantages to getting a level term life insurance policy, there are also some things to remember. These include:

  • Because of the way level term insurance policies work, you will only receive a payout from if you die during the period of cover. This type of policy isn’t an investment, so all the money you paid over the years to the insurance provider will not be returned to you.
  • You may get to the end of your policy and decide that you liked having life insurance so want to take out a new policy. This new cover will be more expensive than it would have been if you’d originally opted for that type of policy. This is because age is one of the factors that impacts life insurance premiums; the older you are, the more expensive life insurance will be.
  • While it’s great to have the guarantee that your life insurance premiums won’t increase with inflation, this does mean that the value of your life insurance cover decreases over time. If you’ve taken out a level term policy to give your family a fixed sum of money if you pass away, that money may be worth less in the future, and be less of a financial cushion the later in the policy that you die.
  • If your circumstances change (for example, you have a child or one of your children grows up and leaves home) then you may be overpaying on your policy. Or, you may be under insured. If the latter is the case, and you’ve chosen a policy that can’t be reviewed, you may have to take out a second life insurance policy to ‘top-up’ the amount that you want to be covered for.

What other types of life insurance are there?

If you decide that a level term life insurance policy isn’t suitable for your needs and circumstances, there are other types of cover that may be more suitable. Previously, we mentioned that life assurance can be split into two categories, and one of them is level term life insurance. The other type of life insurance is decreasing term life insurance. As the name suggests, the amount of cover lessens as time progresses. This type of policy is more suitable for debts that decrease over time, though can also be used for inheritance tax planning. However, this type of policy is also taken out for a fixed term, so if you outlive the policy you lose all of the premiums that you have paid to the insurance company. If this is a cause for concern, you can opt for a whole of life policy, which doesn’t expire. However, this type of cover is much more expensive than a term assurance policy, so you’ll need to weigh up the pros and cons of each form of cover and decide which is best for you.

Mortgage Advice: Tips for New Home Owners

Buying a house can be an exciting time, but it can also be difficult depending on our circumstances. As such, those purchasing a property for the first time are keen to learn some tips to ensure they’re taking the right steps when it comes to purchasing their first property. While there is a lot to consider, having a better understanding of what options are available and how the industry works allow you to make the right decisions with this in mind we had a chat with the team at Dumfries Mortgage Advice who shared their top tips for new home owners.

 

Get Your Credit in Order

While we all have different financial circumstances, those looking to buy a property should ensure that the credit they currently have is being managed. While it may seem unfair, there can be a lot of assumption based on the way we manage our money, simply because this is all a lender can refer to when looking at a mortgage application.

Things to consider can be paying our current rent agreement on time, and ensuring all credit cards are being paid on time each month. It can also be useful to pay more than the minimum payment. The more we’re able to showcase we’re able to manage our finances in the right way, there more likely it is a mortgage application will be accepted.

 

What Kind of Mortgage Will Suit Your Needs Best?

Many new homeowners will already know that a mortgage is a vital part of the process, but they may not be aware of the different types of mortgage available. There is no mortgage type that is better than another, it’s simply a case of finding what works best.

 

Fixed-Rate Mortgage

A fixed-rate mortgage is often used by those keen to know what price they’re paying moving forward. While rates can increase, they can also decrease, which means those on a fixed rate mortgage would not be able to benefit from this.

 

Tracker Rate Mortgage

Much like a fixed-rate mortgage, a tracker mortgage works on a base level that is pre-arranged. This can often be based on the Bank of England base rate.

 

Variable Rate Mortgage

A variable rate mortgage means that the interest paid can depend on current rates and the type of mortgage you have. Some may find that they only make small payments initially, only to find the payments go up at a later date.

 

Repayment vs Interest Only

A repayment mortgage means that you’re paying off the interest, as well as some of the amount borrowed. An interest-only mortgage means that you’re only paying off the interest initially, although you will need to repay the amount borrowed back at the end of the term.

 

Make Use of Government Schemes

Those who are purchasing a home for the first time will still be learning the ropes, and if you’re not careful, you could miss some great incentives that are available.

 

Help-to-Buy

The amount you need for a deposit can vary, depending on the mortgage lender you’re going with. It generally falls around 5 percent of the property value, but some may require more.

Evidently, the saving of a deposit can be a hindrance, but the Help-to-Buy scheme allows you to make use of an interest-free loan that covers 20 percent of the mortgage. The remaining 75 percent is covered by the mortgage.

Those looking to purchase a property in London will still need a 5 percent deposit, but the interest-free loan available from the Government covers 40 percent of the property value. The reason for this can be attributed to the high cost of living in London.

 

Help-to-Buy ISA

Many people have already taken advantage of the benefits an ISA can offer when it comes to saving money, but you may not be aware that there is a Hep-to-Buy ISA available that helps people looking to purchase their first home.

The Help-to-Buy ISA was first introduced in December 2015, and for every £200 saved, the Government will add an additional £50. This will apply up to £12,000 of savings, giving first-time buyers an additional £3,000.

As this is an ISA, it does mean that you will not be able to make any more tax-free savings into another ISA account in the same tax year. However, the Help-to-Buy ISA can be used in conjunction with the Government schemes.

 

Lifetime ISA

If you’re a first-time buyer under the age of 40, then you can open a Lifetime ISA that can be used for a first-time property purchase or towards your retirement. Saves receive 25p for every £1.00 saved, and is paid annually by the Government directly into the account. From April 2018, the bonuses receive will be paid monthly.

The Lifetime ISA can be used as a deposit on a property up to the value of £450,000 within the UK, and you are able to transfer your Help-to-Buy ISA without losing any benefits. You should note that Lifetime ISAs can be a little more complicated, as they are offered as cash, or stocks and share, so it can be worthwhile speaking to the provider in case you have any questions or uncertainties about the ISA.

 

Make Sure You Shop Around

Now you have a better understanding of how mortgages work, as well as the schemes in place to help first-time buyers, you will be in a better position to choose a mortgage that works best for you. Just as with loans and credit cards, the amount you pay can depend on which provider you choose.

If you’re not sure where to start when it comes to searching available options, then why not make use of a comparison site. Not only will this allow you to add your requirements, but it will also give you a breakdown of the rates currently on offer.

There’s no easy way of purchasing your first property, but it can be a more streamlined operation if you’re fully aware of the options available to you.

Infographic by: househunt.com