What is level-term life insurance?
Quick Facts
Level-term life insurance is the most common type of term insurance
Level-term life insurance is often the most affordable option when searching for the right policy
With level-term life insurance, your premium and death benefit will remain the same throughout the life of your policy
Level-term life insurance, the most common type of term insurance, offers both affordable life insurance premiums and a straightforward process for you, the insured.
Life insurance is not a conversation topic in which most people like to engage. As a result, the daunting task of selecting the right policy to protect you and your loved ones can feel overwhelming.
Fortunately, level-term life insurance makes it easy by only asking you to choose the length of your term, the death benefit, and your beneficiary.
Keep reading to learn more about life insurance, particularly level-term life insurance, and how to know which policy is right for you. Then get quotes and compare rates to find the best price.
What is term insurance?
If you are reading this article, it is safe to assume that you are considering life insurance as a means to protect your family from financial difficulties once you are no longer around to provide. Once you, the primary breadwinner, are gone, it will be exceedingly challenging for your family to maintain the same lifestyle they were used to when you were still bringing home a paycheck.
“But what if I can’t afford the premiums on a whole-life policy?” you might ask. Not to worry, term insurance allows you to get the death benefit you need for a price you can afford.
Unlike a whole-life or permanent policy, which provides lifelong coverage, a term policy will last you for a specified amount of time, usually 10-30 years. It will not gain cash value life insurance, and you will need to be rated again for health and age upon renewal should you choose to continue the policy.
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What are the different types of term insurance?
All term life insurance policies follow the same basic set of rules. These policies will cover you for a specified amount of time, but you will receive no benefits if you outlive the policy.
Depending on the term policy you choose and any available life insurance riders, you may have the option to renew your policy once it has ended or recoup all the premiums you paid into the policy.
The most common types of term life insurance policies are level, increasing, decreasing, return of premium, and renewable.
Some types of term life insurance, like a return of premium life insurance policy, will have higher annual premiums because it offers additional coverages you wouldn’t get with a standard or level policy.
Let’s examine what differentiates a level-term life insurance policy from the rest.
What is level-term life insurance?
When insurance companies use the word “level,” they refer to your death benefit, monthly premium, or both. Therefore, there is no need to distinguish between a level-term life insurance policy and what some would call a level-term premium life insurance policy because both offer level premiums and a level death benefit.
Unlike a decreasing term policy, a level-term insurance policy gives you the satisfaction of knowing that as long as you make your monthly payments, your level-term life insurance rates and death benefit will not change.
To make things even simpler, here are some critical points about level-term life insurance to help guide your decision:
Many companies will not require a medical exam, and most policies are approved instantly
You choose the amount of coverage and the length of the policy, which is typically 10,15, 20, or 30 years
Your premium stays level for the term length that you choose
If you die while the policy is in force, your insurer will pay the death benefit to your life insurance beneficiary
The death benefit is tax-free
If you outlive your policy, the life insurance coverage ends
Unless the policy is renewable, you’ll need to buy another policy if you still need life insurance at the end of your policy term
“But how do I know which type of term policy I need?” you might ask. Continue reading to find out how to decide your family’s needs best.
Decreasing Term Life vs. Level-Term Life
As with most significant decisions in life, to make the correct choice about your life insurance, you must first determine your “why.” Next, you and your family must sit down and select the purpose for which you need the life insurance. It would be best to decide why getting life insurance is necessary at this juncture and what you ultimately want to protect.
Let’s say for a moment that you have a 30-year mortgage, and the sole purpose of getting life insurance is to cover the mortgage until you pay it off. In that case, consider a decreasing term policy.
A decreasing policy is a term life insurance policy that has a decreasing death benefit with every year that passes. For example, as your mortgage gets paid, the need for the full death benefit becomes less and less critical. However, as your death benefit decreases, so do your premium payments. If you are only concerned with a large debt like a mortgage, which eventually gets paid down, you may want to look into a decreasing term life policy.
If, however, you are concerned with the financial stability of your family even after the mortgage is paid off, and you still want to receive a total death benefit, then level-term life insurance is more your speed. These policies maintain a level death benefit from your policy’s inception until your term expires.
Advantages of Level-Term Life Insurance
Not all policies are created equal. Some will have more advantages than others. Continue reading to find out what advantages you can expect from your level-term policy.
Level-Term Life Insurance is Affordable
In tough economic times like these, being able to afford life insurance isn’t always feasible. Many people are on a tight budget, and life insurance is outside the top of the priority list. If this describes you, but you still want to secure your family’s financial future, then level-term insurance might be your best option.
Because level-term life insurance policies are not permanent and do not build cash value, you can get a higher death benefit for your money. Therefore, a level-term policy, without any bells and whistles associated with whole-life policies, is a more affordable option for those who want a high death benefit on a budget.
Level-Term Life Insurance Covers Critical Needs
Which type of term-life insurance you choose will ultimately boil down to your age, your debts, and whether you are your family’s sole provider. In most cases, the largest debt one will ever have is a mortgage. If you are on any budget, however, it is unlikely that you will find a whole-life policy that will cover the mortgage amount and still be considered affordable.
Level-term life insurance, though, can cover the length and amount of your mortgage without breaking the bank. This affordability allows you to continue saving money while ensuring that your family is protected from the burden of a house payment should something happen to you before the mortgage is paid off.
Disadvantages of Level-Term Life Insurance
Despite the popularity of a level-term policy, there are still some disadvantages to having this type of life insurance. Keep reading to find out more.
Your Policy Will Eventually Expire
Unlike permanent or renewable policies, once your term is up, you must apply for a new insurance policy, regardless of age or health.
You Will be Older When the Policy Expires
Because your policy is only suitable for a specific term, if you outlive the policy, you will have to apply for coverage again. Unfortunately, this means the low price you were getting in your 30s is no longer what you will pay in your 60s.
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The Bottom Line: Should I get a level-term policy?
Again, it depends on why you want the coverage and whom you want to protect.
A level-term policy is excellent for a young family on a budget who wants the most coverage possible for the lowest price. It is also great for a young couple with a mortgage who wants to ensure the house is paid off if something happens to the insured.
No matter your reasons, shop around through some of the top term-life insurance companies before purchasing.
Frequently Asked Questions
What happens at the end of a level-term life insurance policy?
Generally, when term life insurance expires, the policy simply expires, and no action needs to be taken by the policyholder. A notice is sent by the insurance carrier that the policy is no longer in effect, the policyholder stops paying the premiums, and there is no longer any potential death benefit.
Is it better to get level-term or decreasing life insurance?
Level-term insurance can be the better option if you want to ensure your family would be able to pay for day-to-day living costs and household bills, while decreasing term cover may be more suitable if you only want enough coverage to pay off an outstanding debt.
Can you cash out a level-term life insurance policy?
Term life insurance can’t be cashed out because these policies do not accumulate cash value during the limited time they provide coverage. However, some term policies have an option that enables the policyholder to convert them into a form of permanent life insurance.
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Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states.
After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in…
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Written by
Rachael Brennan
Licensed Insurance Agent
Benjamin Carr worked as a licensed insurance agent at State Farm and Tennant Special Risk. He sold various lines of coverage and informed his clients about their life, health, property/casualty insurance needs.
Assessing risks and helping people find the best coverage to suit their needs is a passion of his. He appreciates that insurance was designed to protect people, particularly during times…
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Reviewed by
Benjamin Carr
Former State Farm Insurance Agent
