What is Level Term Life Insurance?

Learn How Level Term Life Insurance Works

 

If you are considering the purchase of a life insurance policy to provide financial security and protection for your family, you may have heard about Level Term life insurance.

Most people shopping for a life insurance policy need term life.

This type of life insurance, which expires after a specific number of years (the "Policy Term") is affordable and easy-to-understand:

• Level Term – You pay premiums, and if you die during the policy term (duration) the insurance company pays out a death benefit to your beneficiaries.
• If you outlive the policy term, the life insurance coverage ends, and you stop paying premiums.
• Term life is the simplest form of life insurance available, but there are different versions of term plans. 

Most people buying term insurance are actually buying Level Term, an important distinction that guarantees you pay the same price for your policy no matter how long it’s active. That means, your premium is the same each year you are insured.

If you’re looking for a basic financial safety net to make certain your loved ones are secure in the event of your death, level term life insurance is the best option for anyone who needs life insurance lasting for 30 years or less. 

It’s also one of the most common life insurance policies offered by insurance carriers, so it’s easy to compare premiums online, and get the best price.

We will review for you what level term is and how level term policies work.

 

What is Level Term Life Insurance?

Level term life insurance, like all term policies, lasts for a set period of time — typically 10 to 30 years — before it expires. 

The word "Level" is key to the definition: 

• The premium for the policy stays the same, or level, for the entire life of the policy. 
• The death benefit also stays the same.

When people mention term life insurance generically, they usually mean level term insurance. 

 

Level term life insurance follows the same basic process as other life insurance policies:

• Choose a policy, death benefit amount, and term length.
• The cost of a term life insurance policy is determined by these, as well as your health and age.
• Pay premiums monthly or annually.
• If you die while your coverage is in place, a tax-free lump sum of money is paid out to your named beneficiaries.
• If you outlive the policy, it expires and you stop making premium payments.

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Features of Level Term Life Insurance Policies

 

• The Most Common Type of Term Life Insurance
• Guaranteed Level Premium
• Guaranteed Level Death Benefits
• Simplest Type of Life Insurance
• Most Affordable Type of Life Insurance

 

How Long Does Level Term Coverage Last?

Usually, you may choose a duration of level term life coverage lasting for a period of 10, 15, 20, 25 or 30 years.

The longer your policy term, the higher your annual cost of life insurance, because you have a higher probability of dying as you get older.

How Much Does Level Term Insurance Cost?

Level term is the most affordable life insurance for most people. Your premiums are decided based on your age, gender, health, medical history, and other risk factors, like your tobacco use and lifestyle.

The rate per $1,000 of life insurance coverage is multiplied by the amount of insurance to determine your premium for coverage.

For example, if your rate is $3 per $1,000 of coverage and you need $100,000 of life insurance, your premium would be $3 X $100 = $300 per year.

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Level Term Life Rates

Women generally pay lower life insurance premiums than men but individual health backgrounds and other risk factors will impact the final price.

Note that even for affordable level term policies, the cost of life insurance increases with age, rising an average of around 5-9% per year. 

If you need to buy life insurance, buying sooner, when you’re younger and likely healthier, is best, because you will be able to lock-in the lowest rate for the duration of your term life policy, for up to 30 years.

 

What Factors Affect My Rate for Level Term Life Insurance?

There are several factors that impact your rate per $1,000 of level term insurance coverage, including your age and gender.

In addition, several personal risk factors will affect your rate, including but not limited to your health, family health history, lifestyle, tobacco use, occupation, hobbies, driving record, height-to-weight-ratio, etc.

What Happens to Level Term Life Insurance at the End of the Policy Term?

When you reach the end of your policy’s term, the insurance coverage expires. 

At that time, you have a few choices: 

• Go Without Any Life Insurance Protection – You should only do this if you’re able to self-insure and genuinely have no dependents or outstanding debts.
• Purchase a New Life Insurance Policy – Note that you’ll have to undergo the medical exam again, so while your premiums will be level, they will be more expensive than those of the expired policy.
• Convert Your Expiring Term Policy to a Permanent Life Insurance Policy – This is a common feature of term insurance policies. A permanent life policy will last your entire lifetime, but is much more expensive than a term life policy.

 

Advantages and Disadvantages of Level Term Life Insurance

Although level term insurance may be right for many of us, there are still some Pros and Cons to consider before choosing your plan.

Advantages of Level Term Life Insurance

• Premiums Never Increase
• Death Benefit Never Decreases
• Easy to of Life Insurance

 

Disadvantages of Level Term Life Insurance

• Expires – You May Outlive Your Coverage
• Death Benefit Coverage Only
• No Cash Value 

 

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