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What Is Level Term Life Insurance? Your Complete Guide!

What Is Level Term Life Insurance?

Level-term life insurance is a type of life insurance policy where the death benefit and premium remain fixed throughout the duration of the policy. This means that, regardless of what happens in the marketplace or your situation, you can be certain that your beneficiaries will receive a set amount if something happens to you.

Like any other life insurance policy, the amount of coverage you purchase will depend on your individual needs. When considering how much life insurance to buy, consider factors such as outstanding debts, mortgages, and long-term care costs. Additionally, think about what kind of lifestyle you want your beneficiaries to have after you’re gone.

It is important to distinguish between “term life” and “level term life” policies, as some may assume they are identical. Without clarity, you may end up paying more than expected as your premiums increase annually. Thus, it is recommended to comprehend the difference before purchasing a policy. This blog post will help you understand the basics of level-term life insurance and determine if it’s the right policy for you.

What Is Level Term Life Insurance?

Level term life insurance is a specific type of term life insurance policy where both the death benefit and the premium you pay remain the same, or “level,” for the entire policy duration. It’s a straightforward policy and often one of the most affordable ways to secure substantial life insurance coverage.

This type of policy generally has a set duration, usually anywhere from 10 to 30 years. It’s important to remember that this coverage ceases at the end of the term. That said, you can always extend your policy or purchase another level term life insurance policy if you still need coverage after the initial policy expires.

How Does Level Term Life Insurance Work?

Like all other life insurance policies, you must go through the underwriting process. This means that the insurer will look at a variety of factors, such as your age and health history, when determining what kind of rate they are willing to offer you.

Level Benefits

One of the most appealing aspects of level-term life insurance is the consistency of the death benefit. The ‘level’ in level-term life insurance refers to this feature. This means that no matter when you were to pass away during the term, your beneficiaries would receive the same amount. It’s a promise that doesn’t change over time, and that’s one of the main reasons many people are drawn to this kind of policy.

For instance, if you purchased a 20-year term life policy with a $500,000 death benefit and unfortunately passed away in the 10th year, your beneficiaries would receive that entire $500,000. They’d receive the same amount if you passed away in the second year or even the last year of the policy term. This consistent benefit can provide immense peace of mind, knowing your loved ones will have a set amount of support.

Level Premiums

Another major feature of level-term life insurance is the predictability of the premiums. Not only does the death benefit remain the same, but so do the premiums you pay. This stability makes budgeting for premium payments much easier. You’ll know exactly how much you’ll pay each month or year throughout the policy term, and you can plan your finances accordingly.

Imagine you choose a 30-year term life insurance policy at age 35. Your premium, let’s say $30 per month, won’t increase as you age or if your health changes. It will remain the same until the end of the term when you are 65. This can offer a lot of financial certainties, which can be very beneficial when planning for the future. However, do keep in mind that if you want to extend your coverage or get a new policy after your initial term ends, the premium for the new policy will likely be higher, reflecting your older age and any changes in health.

Key Features and Advantages of Level Term Life Insurance

Level-term life insurance policies offer several features. They provide a predictable and transparent insurance plan, allowing policyholders to budget without any unexpected price increases. Since the payout amount doesn’t decrease over time, it provides a reliable safety net for your loved ones if the unthinkable should happen.

What Is Level Term Life Insurance?
Agent Offering Life Insurance Policy

Limited Protection Term

One key feature of level-term life insurance is that it provides coverage for a limited period of time, known as the ‘term.’ The term could be 10, 20, or even 30 years, and during this period, your premium remains the same, as does the death benefit. This finite protection period might seem like a disadvantage, but it can actually be a beneficial feature for many individuals.

You might only need life insurance coverage until your children are grown and financially independent or until you’ve paid off your mortgage. In such cases, a term life policy can provide the financial safety net you need, and once the term ends, you might not require the coverage anymore. The fact that you aren’t paying for lifelong coverage can make level-term life insurance significantly more affordable than permanent life insurance.

Level Premiums and Death Benefit

Another notable feature and advantage of level-term life insurance is its predictability. The premiums and the death benefit remain the same for the entirety of the term. There’s a certain comfort in knowing what to expect – your monthly or annual premium won’t increase, and the benefit your family would receive should anything happen to you doesn’t decrease over time.

This level structure allows for easier budgeting and gives you peace of mind that your loved ones will receive a significant, predetermined amount. It’s like having a reliable safety net that your family can count on, and this reliability can relieve some of the stress associated with financial planning.

Convertibility Option

Many level-term life insurance policies come with a convertibility option, an often overlooked but highly advantageous feature. This option allows you to convert your term life policy into a permanent one without undergoing further medical underwriting.

Imagine you’re near the end of your term, and you’ve developed a medical condition that could make a new policy prohibitively expensive. The ability to convert your term policy into a permanent one could provide continued protection without breaking the bank. It’s an option that adds a layer of future-proofing to your policy.

Affordability

Among the advantages of level-term life insurance, affordability stands out. Because it’s designed to be straightforward and temporary, level-term life insurance typically comes with lower premiums than other life insurance forms.

This affordability allows individuals on a budget to secure significant life insurance coverage. Whether you’re a young professional just starting or a parent wanting to safeguard your family’s financial future, the affordability of level-term life insurance makes it an accessible choice for many.

Flexibility

Level-term life insurance policies offer a good deal of flexibility. You can choose a term length that aligns with your needs and your family’s financial obligations. You can select a shorter term if you’re close to paying off your mortgage or opt for a longer term if you’ve just started a family and want to ensure your kids are covered until they’re grown.

Moreover, should your needs change over time, many policies also allow you to adjust the coverage amount or even convert the policy into permanent coverage. This flexibility means your level-term life insurance can adapt as your life and circumstances evolve.

What Is Level Term Life Insurance?
Life and health insurance policy concept idea. Finance and insurance.

Cheaper in the Long Run

The initial premiums for level-term life insurance might be higher, unlike permanent life insurance. In the end, it can be cheaper in the long run. Since your premium and death benefits don’t change over time, you won’t have to pay more as you age or if your health deteriorates.

On the contrary, many permanent life insurance policies come with increasing premiums over time, so it makes sense to choose a term policy if you’re only seeking coverage for a limited period. The longer the term length you select, the more cost-effective your policy will be in the long run.

Pros & Cons of Level Term Life Insurance

Level-term life insurance provides several benefits and features that make it an attractive option for many. It’s affordable, predictable, and flexible. However, as with any life insurance, there are also some drawbacks to consider before committing to a policy.

Pros

Cost-Effective: Level-term life insurance is generally one of the most affordable types of coverage.

Predictable: The level of premiums and benefits make budgeting easier as you know exactly your costs and benefits.

Flexible: These policies come in various terms, typically ranging from 10 to 30 years, so you can choose one that best fits your needs.

Cons

Temporary: Unlike whole life insurance, level-term life insurance is not permanent. If you outlive your policy, you will no longer have coverage, and the premiums paid will not be returned.

No Cash Value: These policies do not accumulate cash value over time, unlike certain other types of life insurance.

Should You Buy Level Term Life Insurance?

Level-term life insurance is an excellent option for those looking to provide financial protection for their families without breaking the bank. It’s affordable, flexible, and offers a good degree of predictability.

You’re married

If you’re married, purchasing level-term life insurance could be wise. Whether or not your spouse works, they might be financially dependent on you to some extent. Your sudden absence could create a significant financial strain. With a level-term life insurance policy, you can provide a financial safety net to help your spouse manage the expenses, maintain the lifestyle, and care for any shared debt in the unfortunate event of your demise. This coverage is especially crucial if your spouse has trouble sustaining their lifestyle or meeting financial obligations without your income.

You have children

When you have children, their well-being becomes your utmost priority, including their financial security. Level-term life insurance can ensure they’ll be taken care of financially if you’re no longer there to provide for them. From day-to-day expenses and medical care to education costs and beyond, the death benefit can cover a range of necessities. You can select a term length that covers the years until your youngest child is expected to become financially independent, offering peace of mind that their financial needs will be met during their most dependent years.

Other family members depend on your income

It’s not just spouses and children who might rely on your income. Perhaps you’re providing financial assistance to aging parents, siblings, or other relatives. In such situations, a level-term life insurance policy can replace your financial support, ensuring your loved ones can continue to meet their financial needs if you pass away. The level of premiums and death benefits allow for easy financial planning, making it a dependable choice if you have financial dependents.

You have debts

If you have substantial debts, such as a mortgage, car loan, or personal loan, a level-term life insurance policy can provide the means to repay these if you die before clearing them. Leaving debts unpaid can create a heavy financial burden for your loved ones, potentially leading to assets being seized or financial hardship. By securing a life insurance policy with a death benefit that covers your debts, you can ensure that your family can pay off these obligations and maintain their financial stability.

How Much Does a Level Term Life Insurance Policy Cost?

The cost of a level-term life insurance policy can vary based on several factors, including your age, health, the term’s length, and the death benefit’s size. But in general, it is typically more affordable than other forms of life insurance. You may wish to compare quotes from different life insurance companies to get a clearer idea of potential costs.

On average, a 30-year-old in the US can expect to pay between $20 and $40 per month for a level term life insurance policy. Compared to whole-life insurance, level-term insurance is typically less expensive. Premiums for level-term insurance are lower for younger individuals in good health but increase for older individuals with health issues.

Frequently Asked Questions

What is level-term life insurance?

Level-term life insurance is a type of life insurance that guarantees a fixed death benefit and maintains the same premium payments throughout the term of the policy.

Should I get level-term life insurance?

If you’re seeking a straightforward, cost-effective policy that can provide financial security for your loved ones, level-term life insurance could be a good fit. It’s particularly beneficial if you have significant financial responsibilities and dependents relying on your income.

How much does level-term life insurance cost?

The cost of level-term life insurance varies widely based on personal factors like age, health, lifestyle, the length of the term, and the amount of coverage. However, it is typically one of the more affordable life insurance options. It’s always a good idea to shop around and compare quotes from different insurers to ensure you’re getting the best possible rate.

Which is better, level term or decreasing term life insurance?

The choice between level-term and decreasing-term life insurance largely depends on your personal circumstances and financial needs. Level-term insurance might be better if you want a consistent death benefit and stable premiums throughout your policy term. However, decreasing term insurance can be suitable if you have a diminishing financial obligation, like a mortgage, that decreases over time.

Final Words: What Is Level Term Life Insurance?

Level-term life insurance offers a simple, straightforward approach to securing the financial future of your loved ones. Its level of premiums and benefits make it an attractive option for many, especially those on a budget or those with clear, time-limited financial obligations. As always, it’s essential to consider your circumstances, financial obligations, and future goals when choosing the right life insurance policy. Consulting with a financial advisor or insurance expert can be an excellent way to explore all your options and make the best choice for you and your family.

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