What Is Level Term Life Insurance: Pros, Cons & Who Should Buy
By , Freelance Personal Finance Writer
Level term life insurance is a type of term life insurance where the policy beneficiaries receive the same death benefit amount, regardless of how far into the term you are at death.
This type of insurance is also sometimes called level benefit term life insurance, since the benefit stays the same throughout the policy’s life. In addition to level benefits, level term life insurance policies also feature level premiums.
How does level term life insurance work?
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Key Takeaways
Level term life insurance is a type of term life insurance that helps pay debts, replace income and cover costs for your family and dependents if you pass away.
Term lengths are typically fixed periods of 10, 20 or 30 years.
Premiums and death benefits remain level throughout the policy term, meaning you’ll pay the same amount each month and your benficiaries receive the same benefit no matter when you pass away.
What Is Level Term Life Insurance?
Like other types of life insurance, the primary purpose of level term life insurance is to provide for your family if you were to pass away. Level term life insurance can cover costs like debts and funeral expenses, replace your income and help cover ongoing expenses for your family and dependents.
For example, if you’re married with two young children and a mortgage, a level term life insurance policy could be a worthwhile investment for your family. If you purchase a level term life insurance policy, you can know that your family will have a financial cushion in the event that you’re no longer around to provide for them.
Especially if you have family members that depend on your income, a level term life insurance policy can help ensure that your loved ones are taken care of. Level term life insurance is one of the most popular types of term life insurance since both the benefit and the premium remain the same over the policy’s term.
Level term life insurance is often more affordable than other policy types in the long run while providing a stable amount of coverage throughout the life of the policy.
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How Does Level Term Life Insurance Work?
There are two main features of level term life insurance that remain “level”: your monthly premium and your death benefit. Both of these numbers remain constant over the term of the policy.
Quality | Description |
|---|---|
Level benefits | Level term life insurance policies are the most common type of term life insurance policies. With level term life insurance, as opposed to decreasing term life insurance, the death benefit remains the same throughout the policy and does not decrease over time. With decreasing term life insurance, the death benefit decreases over time. Generally, level term life insurance is better for customers looking for long-term protection and a stable benefit. Decreasing term life insurance could be a good fit for those who have recently taken on a big financial obligation, like a mortgage. |
Level premiums | Normally, life insurance premiums increase as you age because you pose a higher risk to life insurance companies as you get older. A level term life insurance policy keeps your premiums level throughout the term. If you take out a 20-year life insurance policy, you’ll pay the same premium for the next 20 years, with no increases. |
Laddering is a technique used by life insurance shoppers to purchase multiple types of insurance coverage that expire at different times. Adding multiple policies with varying term rates is one way to get your ideal coverage level.
For example, if you’re 30 years old with children, student loans and a mortgage, you might expect to pay off your loans in the next 10 years, provide for your children for the next 20 years and pay off your house in the next 30 years. After that, you might expect your costs to decrease. You could have a ladder that accounts for your decreasing costs:
- A 30-year policy for $500,000
- A 20-year policy for $500,000
- A 10-year policy for $500,000
Under this example, your death benefit will decrease by $500,000 every 10 years. If you were to pass away in the first 10 years, the benefit would be $1.5 million, but if you were to die in 25 years, the benefit would be $500,000. Laddering is one way to balance the cost of life insurance with your family's changing needs over time.
Pros & Cons of Level Term Life Insurance
Level term life insurance is one of the most popular types of term life insurance policies. This type of term life insurance policy is best for those who want stable coverage over the long term and those with children, spouses or other dependents.
Pros & Cons
- Consistently low rates if you started coverage on good health
- Predictable costs
- Death benefit stays the same over the term length
- May be more affordable in the long run
- Consistently high rates if you started coverage in poor health
- Your financial needs might change before the term length ends, saddling you with more coverage than you need
- Unlike whole life insurance, coverage is temporary and expires after the term limit
Level term life insurance is often a good choice, providing stable premiums and death benefits over the term. These policies are relatively affordable and can give you peace of mind knowing that your family will have a financial cushion if you’re no longer around to provide for them.
However, there are a few drawbacks to this type of policy. If you’re already in poor health when you take out the insurance, your premiums will be higher.
Since both benefits and premiums remain the same over the policy's life, you won’t be able to adjust it if your financial circumstances change. And, unlike whole life insurance, the coverage expires after a certain amount of time, so you’ll likely need to purchase a new policy at a more expensive rate.
Should You Buy Level Term Life Insurance?
You’re married
If you’re married or in a long-term partnership, level term life insurance can help ensure that your spouse or partner is provided for if something were to happen to you. Level term life insurance can help cover funeral costs, replace your income and provide financial support during a difficult time.
You have children
Parents should consider purchasing level term life insurance to provide for their children in the event of their passing. The death benefit from level term life insurance can be used to ensure your children have the funds they need for housing, school and other costs.
Other family members depend on your income
Spouses and children aren’t the only family members who may depend on your income. If you support other family members, like your parents or siblings, you should consider purchasing a level term policy to protect them.
You have debts
Level term life insurance can also be used to pay down debts in the event of your passing. For example, if you have a mortgage, your loved ones could use the death benefit to pay down the mortgage after you pass away.
When it comes to level term life insurance, “level” can be used to refer to either the premium or the benefit (or both). In most cases, both the premium and the benefit are level, meaning they don’t change over time.
In some cases, a policy may have a level premium or a level benefit, but not both. Before you purchase a policy, it’s important to clarify exactly how your costs and benefits may change over time with your insurance provider.
How Much Does a Level Term Life Insurance Policy Cost?
The average 30-year-old American will pay around $20 to $40 per month for a level term life insurance policy. Level term life insurance rates tend to be much less expensive than the cost of a whole life insurance policy. You’ll typically pay lower premiums if you’re young and in good health and higher premiums if you’re older or have health complications.
Average Monthly Life Insurance Premium by Age per Coverage Level
Age | $250,000.00 | $500,000.00 | $1,000,000.00 | $100,000.00 |
|---|---|---|---|---|
30-year-old | $18.09 | $24.82 | $46.65 | $12.36 |
40-year-old | $25.50 | $36.91 | $72.67 | $13.37 |
50-year-old | $57.31 | $92.27 | $175.62 | $25.98 |
60-year-old | $145.89 | $250.93 | $486.80 | $68.74 |
70-year-old | $412.96 | $1,174.55 | $2,303.51 | $119.33 |
The life insurance rates above are based on the average quotes for a 20-year term life insurance policy.
Even though it may cost more, you may want to take out a 20-year level term life insurance policy with $500k to $1 million in coverage. The best life insurance policies provide adequate coverage for your loved ones, while the cheapest life insurance policies may have more limited coverage.
If you’re not sure which type of life insurance is best for you, it’s a good idea to consult a financial advisor to make sure that you select the best policy for your situation.
Compare Life Insurance Rates
Ensure you are getting the best rate for your insurance. Compare quotes from the top insurance companies.
Frequently Asked Questions
Life insurance can sometimes seem a little complicated, but we’re here to help. We cover some of the most common questions concerning level term life insurance below.
About Margaret Wack
