How Does Level Term Life Insurance Work?
Level term insurance is a type of term life policy with a fixed price and death benefit for the life of the policy. It’s the most common type of term life insurance sold and is usually available in 10-, 15-, 20-, 25-, or 30-year terms.
Like any other form of life insurance, when you die, the insurance company will pay a tax-free cash payment to your beneficiaries. They are free to spend that money however they desire.
How Much Does Level Term Life Insurance Cost?
Below are level term life insurance rates for a 20-year term, ranging from $50,000 to $2 million in coverage.
Who Should Consider Level Term Life Insurance?
Level term insurance is the ideal solution for those who need life insurance to replace income. If you’re the primary breadwinner of your household and have minor dependents, a level term policy ensures you have sufficient coverage to ensure that your death won’t preclude your family from carrying on their lifestyle.
A level term policy can also be suitable for anyone who needs affordable life insurance with a predictable premium, making it easy to budget for.
Pros And Cons Of Level Term
- Stable and predictable premium: Because the rate cannot change, you can easily budget for it and trust that the premium won’t one day balloon to an unaffordable price.
- Cheapest type of term insurance in the long run: Level term insurance is slightly more expensive than renewable term in the beginning. However, renewable term polices increase in cost over time, so over the long haul, you’ll end up paying less with a level term.
- Affordable life insurance: Term life insurance is always much less expensive than universal life or whole life insurance.
- Often renewable or convertible: Most companies that sell level term will include the option to convert to whole life insurance or renew the coverage at the end of the term (sometimes you’ll have both options).
- Initially more costly than renewable term: Level term life insurance is generally more expensive (not by much) than renewable term policies.
- Temporary coverage: It’s term insurance, which means the coverage will end at some point. If you need life insurance for an indefinite period of time, a term policy will not be a good solution.
- Renewal premiums can be hefty: If you renew (assuming it’s possible), the premium increase is often substantial, especially for senior citizens.
- No room for rate reductions: Perhaps your health has improved, or you stopped smoking. If there is any reason you can get a lower rate now, it doesn’t matter since a level term policy stays the same no matter what. You’d have to cancel the policy and reapply to realize any rate reduction due to your lifestyle or health improvements.
What Happens At The End Of The Term?
When a level term policy reaches the end of the term you typically have the following options:
- Termination: If no action is taken to renew or convert the policy (assuming those were options, which they sometimes are not), the policy will formally terminate. You would be uninsured, and the insurer will keep the premiums you paid unless you had a return of premium riderReturn of Premium Rider
A rider that will refund all premiums paid at the end of the policy term. It's uncommon for insurers to offer these riders, and they will significantly increase the policy's cost.. - Renewal: At the end of the term, the insurer will offer you the option to renew the coverage for an additional term at a higher rate. If you agree to the higher price, the policy will continue at the higher premium.
- Convert: Most term policies (level or not) have the option to convert to whole life insurance. If you convert to whole life before the term expires, then you’ll have lifetime coverage. Just be prepared for a significant price increase, as whole life insurance can cost up to 10 times as much as term life insurance.
- Buy new coverage: You are always free to buy a new policy from the same company or from a different provider. Bear in mind that your current age and health will impact your options and the cost. It would be unwise to assume you’ll qualify for a price similar to what you’ve been paying. Furthermore, if your health has declined, it may now prevent you from qualifying for term insurance. You may need to consider options such as final expense insurance or guaranteed issue life insurance, both of which are well-suited to applicants with high-risk pre-existing conditions.
Level Term Vs Increasing And Decreasing Term Life Insurance
Level term insurance never changes. But depending on why you need life insurance, it may not be the best solution. Perhaps a decreasing or increasing term life policy would more optimally serve your needs:
- Decreasing term: This type of term life insurance will have a death benefit that decreases over time. In many cases, the premium will also decrease as the death benefit does. This can result in substantial savings over the life of the term. A decreasing term policy is generally best for covering mortgage protection needs or other financial debts since debts, by nature, decrease over time.
- Increasing term: This type of term life insurance has a death benefit that steadily grows over time. Sometimes the premium remains fixed, but often it increases along with the death benefit. An increasing term life policy can help offset inflation or address financial needs you know will increase in the future.
- Nationally licensed life insurance agent with over 16 years of experience.
- Personal annual production that puts him in the top .001% out of all life insurance agents in the nation.
Anthony Martin is a nationally licensed insurance expert with over 16 years of experience and has personally served over 10,000 clients with their life insurance needs. He frequently authors entrepreneurial and life insurance content for Forbes, Inc.com, Newsweek, Kiplinger, and Entreprenuer.com. Anthony has been consulted as an expert life insurance source for dozens of high-profile websites such as Forbes, Bankrate, Reuters, Fox Business, CNBC, Investopedia, Insurance.com, Yahoo Finance, and many more.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
