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What Is Level Term Life Insurance?

What Is Level Term Life Insurance? 

Level term life insurance is a type of life insurance policy that provides coverage for a specific length of time, or “term,” and maintains a consistent premium — meaning you’ll pay the same fees every month. This policy will pay your beneficiaries for your potential death if it happens within the set term. Term life insurance policies generally range between 10 to 30 years.

Your death benefit — the lump sum your beneficiaries receive if you die — remains the same for the length of the policy. In the event of your death, the death benefit could help replace your income, cover funeral and burial costs, or pay off large debts. 

The premium, the amount you pay monthly for the policy, remains the same. This consistency provides predictability for your budget.  

How Prevalent Is Term Life Insurance? 

Roughly half of all Americans eligible for life insurance have some sort of coverage, with term being the most popular form due to its affordability and flexibility. It generally comes with low premiums and is offered by most major life insurance providers, giving consumers many options for coverage.

Term life insurance is often available through employers, insurance companies, or agents. It comes in a few different types — including decreasing term, renewable term, and level term.

How Does Level Term Life Insurance Work? 

Term life insurance provides a consistent level of coverage for a set period of time. When you purchase it, you’ll decide on the duration of time you want to keep it. The level premium will remain the same throughout the term, keeping costs predictable for the insured. If you pass away during the term, your death benefit will be released to your beneficiaries.

You have a few options if you do not pass away in that timeframe:

  • Renew the policy for an elevated premium due to your increased age
  • Let the policy expire
  • Convert the policy into a permanent policy, in some cases

Who Is Eligible for Level Term? 

Depending on the insurer and policy, eligibility will likely hinge on your health and age. For example, you might not be able to buy a term policy if you’re over a certain age limit. The best time to buy life insurance is when you’re young and healthy, as policies generally get more expensive as you age.

Your health history and tobacco use can increase your policy costs. Specific eligibility requirements will depend on the insurance company you’re working with.

How Does The Death Benefit Work?

If you die during the policy term, your beneficiary is paid the death benefit amount specified in your policy. Death benefits can range from $1,000 to $1,000,000 or more, depending on what you chose when you started the policy. If available, a rider (a policy add-on) can ensure larger death benefits. For example, one type of rider provides additional cash if your death is due to an accident. 

The death benefit is generally tax-free, meaning your loved ones will receive the entire amount without having to pay income tax on it.

What Happens After The Term Ends? 

After the term ends, you’ll have several options — or your existing plan may include a feature that makes that decision for you. 

Extending The Policy

You can extend the policy by renewing it. However, the premium will likely increase because you’re older and more likely to pass away. If you extend the contract, you might have to undergo a medical exam to show evidence of insurability. If the exam reveals a health condition, the insurance company could deny you an extension or charge a much higher premium.

Converting The Policy 

Convertible term allows you to exchange a term policy for a cash-value or permanent policy without showing evidence of insurability. This option is usually only available in the term policy’s first few years, but some term policies offer an automatic conversion to a cash-value policy. 

Letting The Policy Expire 

Letting a policy expire is also a reasonable option. This type of insurance isn’t meant to stay in force for your entire life. Often, people buy it when concerned about suddenly dying while being a primary breadwinner, when raising children, or paying off a mortgage. Insurance expiration makes sense if you’ve saved enough money to cover the discontinued life insurance or have few financial obligations.

How Much Does Level Term Coverage Cost? 

Premiums depend on the amount of coverage you want to buy and how long of a term you’re purchasing for. 

In general, the costs depend on the following: 

  • Age
  • Height
  • Weight
  • Smoking history
  • Medical history
  • Occupation
  • High-risk activity participation
  • Driving record
  • Family health history

Take a look at the example chart below, featuring average premium prices for a 30-year term for a healthy female.

Age of Policyholder
Average Monthly Premium

Based on the above example, you can see that as you age, your life insurance premiums will as well. But remember, these premiums are not even accounting for other key factors, such as tobacco use or family health history. To determine your exact costs, you’ll need to speak with an insurance agent who can calculate your specific situation.

How To Get Level Term Coverage 

There are several steps to undergo when getting a level term insurance plan. You must determine your coverage amount, choose a term, shop for quotes, and apply for the plan of your choosing.

Determine Your Coverage Amount 

It’s generally advised that you plan for $15,000, at a minimum, to cover funeral expenses. However, ensuring family stability will require far more.  

First, you should add up the following:

  • Expenses associated with your funeral and burial, 
  • Your beneficiaries’ daily expenses, such as rental and mortgage payments, and
  • Any outstanding debts

Then, total any benefits available in the event of your death. This may include your employer’s life insurance policy, social security, retirement accounts, or other assets. 

Estimate the difference between your survivors’ financial obligations and your survivors’ current income and assets. The gap will help determine your coverage amount.

Choose The Term 

Choosing a term is important because the policy no longer covers you once the term ends, and your premiums will likely increase if you renew the policy. Think about how long it could realistically take you to build your stash of assets — such as a retirement account or savings — that would take the place of the insurance policy. This may be 10 to 20 years.

While the exact offerings will depend on the insurer, these policies are often sold in durations of 10, 15, 20, and 30 years.

Shop For Quotes 

Seek out an agent licensed to sell insurance, and shop around from several companies for quotes. Compare prices, term lengths, medical requirements, and riders you can add to the policy. Research any customer complaints and the company’s financial rating. 

Applying, Paying, and Issuance

Once you decide on a policy, you’ll complete an application and submit it to the insurance company. The application will ask you to provide detailed personal history, including information on the following:

  • Your financial health
  • Criminal pleas or convictions 
  • Participation in certain higher-risk sports
  • Family history of serious medical illnesses such as cancer, diabetes, or stroke
  • Your health history regarding physical and mental illnesses

Then, the insurer will investigate your background and may even interview your friends or physician. The underwriter reviews your information and decides your eligibility and premium cost. You are only fully covered when you accept the issued policy and pay the premium. 

The specifics are state-regulated, but you may be entitled to a “free-look period.” During this period, you can start a policy and see if you like it. If you change your mind, you can cancel the policy and get a full refund.  

Is Level Term Right For You?

Level term life insurance could be a good choice for those seeking a stable and predictable monthly policy premium and overall death benefit amount. However, this insurance may not be the right choice for everyone, such as those looking to protect against a diminishing debt or more long-term solutions beyond a few decades.

Pros of Level Term

  • Level term policies provide the same death benefit for the entire term. This means if the policyholder dies during the last year of a 20-year level term policy, their beneficiaries would still receive the policy’s total death benefit. However, if the policyholder had a decreasing term policy, their beneficiaries would receive only a portion of the original death benefit, as it drops each year that the policy is in force. 
  • Level term life policies allow the policy owner to provide financial protection for beneficiaries during times when they need it. With level term life insurance, it’s possible to tailor coverage to meet the needs of the policyholder. For example, parents may choose to purchase 20-year level term policies when a child is born to help pay for ongoing expenses and education costs in case one parent dies while the child is still living at home. Level term policy lengths could be set to coincide with when the child becomes independent and life insurance coverage is no longer needed.
  • Level term life insurance is inexpensive compared to whole life insurance. Whole life insurance policies are more expensive because a portion of your premium payments goes toward the cash valuecomponent built into permanent life insurance benefits. Level term policies, on the other hand, do not typically offer a cash valuecomponent. As a result, whole life insurance is generally much more expensive than a level term policy with the same death benefit. 

Cons of Level Term

  • Level term life policies do not account for temporary coverages where payout needs decrease over time. For those seeking extra protection for mortgages, loans, or other costs that would decrease over time as the debt is paid off, a decreasing term policy would be more suitable.
  • Level term policies do not build cash value over time. Unlike whole life insurance, which a policy owner may be able to eventually borrow against or take cash out, level term life insurance polices only provides a death benefit. It does not have any cash value, and you can’t borrow against it for supplemental income or emergencies.
  • Level term life insurance can become too expensive for long-term coverage. Even though level term policies have the same premium amount each month during the initial term, it can become costly after that. For example, an insured person may purchase a 20-year term at $50 per month. But after the initial 20-year period, the premium may renew at $150 per month. Level term life insurance policies have end dates, and if you choose to keep your policy at that time, you can usually expect a large increase in price. This can result in higher premium costs with each term policy renewal, which can vary depending on the policy and insurer.
  • Level term insurance may cancel at the end of the initial term. Although some policies will allow the insured to keep the policy after the initial term at a higher premium, some level terms may cancel altogether at the end of the initial term.

Alternatives to Level Term 

Depending on your situation, other types of term insurance may be a better fit for you, including the following options.

Decreasing Term 

With this policy, the death benefit gradually lowers over time until it reaches zero at the end of the policy. This may make sense if you think your insurance needs will decline as you age. A decreasing term’s premiums are generally lower than a level term policy and remain consistent throughout the term.

This policy is sometimes used to match the duration of another financial obligation, such as a mortgage. For example, if you have a 15-year mortgage, you may get a 15-year decreasing term policy to ensure coverage while you pay off the mortgage.

Yearly Renewable Term

This policy allows you to renew every year, even if your health would otherwise disqualify you from a new plan. A yearly renewable term’s flexibility may be best for short-term coverage, especially if you’re between jobs. However, some plans allow you to convert your yearly renewable term to permanent life insurance in the first few years. 

With this policy, you may need to pay your premiums all at once without a monthly option. After that, premiums will likely increase once a year in an established, stepped way. There may be an age after which you can’t renew further.

Putting It All Together 

Level term life insurance provides dependable protection for your loved ones in the event of your death, offering a lump sum to cover funeral costs and ensure your family’s financial stability. It can be an affordable, effective solution that allows you to budget for your monthly or annual premiums without surprises. And, if you wish, you can combine your employer’s low-cost level term policies with term or permanent life policies you buy on your own. 

Plan for your family’s future. Get a life insurance quote today.

Get a quote

Plan for your family’s future. Get a life insurance quote today.

Get a quote