What Is Level Term Life Insurance & Who Should Buy It?


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Updated: May 22, 2024

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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 when you pass away.

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.

Ideal for individuals seeking straightforward protection, level term life insurance is particularly well-suited for those with defined financial obligations like a mortgage, educational expenses or family support needs.

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Key Takeaways

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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.

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Term lengths are typically fixed periods of 10, 20 or 30 years.

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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 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. It can give you peace of mind that your family will have a financial cushion if you pass away while they still have significant financial obligations to manage.

How Level Term Life Insurance Works

Level term life insurance policies are the most common type of term life insurance policies. With this policy type, both the death benefit and the premium remain the same over the policy's term. It 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.

Two main features of level term life insurance remain "level": your monthly premium and your death benefit. Both of these amounts remain constant throughout the policy's term.

Level Benefits

With level term life insurance, the death benefit remains the same throughout the policy and does not decrease over time. This means that your family will receive the same benefit amount regardless of when you pass away, as long as it's during the life of the policy.

Level Premiums

Life insurance premiums generally increase as you age because you pose a higher risk to life insurance companies as you age. A level term life insurance policy keeps your premiums level throughout the term. If you take out a 20-year term life insurance policy, you'll pay the same premium for the next 20 years, with no increases.

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MONEYGEEK DICTIONARY

Laddering is a technique used by life insurance shoppers to purchase multiple types of insurance coverage that expire at different times. Adding various policies with varying terms is one way to get your ideal coverage level.

For example, say 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 the following 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

In this example, your death benefit will decrease by $500,000 — and your premiums will be reduced — every 10 years. If you passed away in the first 10 years, the combined benefits from the three policies would be $1.5 million, but if you died 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.

Cost of a Level Term Life Insurance Policy

The average cost of a 10-year level term life insurance policy with $250,000 in coverage for a 40-year-old is $18 per month. A 20-year level term plan for the same policyholder profile costs an average of $26 per month. Actual rates may vary based on individualized factors.

Life insurance companies calculate the cost of a level term life insurance policy based on personal and policy-specific factors. Insurers consider age, health status, lifestyle choices such as tobacco use, and the length and amount of coverage when determining premiums. The younger and healthier you are, the lower the premiums tend to be. The policy's term length also plays a huge role — the longer the term, the higher the premium, as the insurer takes on a greater risk over an extended period. The death benefit amount you choose also directly influences the cost; higher coverage amounts lead to higher premiums.

The table below shows a snapshot of average monthly costs for 10-year term life insurance with different coverage amounts and for different ages.

30-Year-Old$250,000$14$500,000$20$1 Million$35
40-Year-Old$250,000$18$500,000$29$1 Million$53
50-Year-Old$250,000$37$500,000$65$1 Million$117
60-Year-Old$250,000$76$500,000$141$1 Million$271
70-Year-Old$250,000$204$500,000$410$1 Million$719

Below are average monthly costs of 20-year term life insurance policies for different ages and coverage amounts.

30-Year-Old$250,000$17$500,000$28$1 Million$50
40-Year-Old$250,000$26$500,000$44$1 Million$83
50-Year-Old$250,000$58$500,000$106$1 Million$203
60-Year-Old$250,000$150$500,000$286$1 Million$556
70-Year-Old$250,000$752$500,000$1481$1 Million$2988
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MONEYGEEK EXPERT TIP

It's not always wise to take out the cheapest life insurance policy you can find — in some cases, a 20-year level term life insurance policy with $500,000 to $1 million in coverage may be ideal. 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.

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Pros and Cons of Level Term Life Insurance

Level term life insurance is one of the most popular types of term life insurance policies. It's best for those who want stable coverage over the long term and those with children, spouses or other dependents.

Pros & Cons

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PROS
  • Consistently low rates if you start coverage in good health
  • Predictable costs
  • Death benefit stays the same over the term length
  • May be more affordable in the long run
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CONS
  • 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 ensure 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 likely be higher.

Since benefits and premiums remain the same over the policy's life, you won't be able to adjust them if your financial circumstances change. The coverage also expires after a certain period, so you'll likely need to purchase a new policy at a more expensive rate if you end up needing coverage for longer.

Who Should Buy Level Term Life Insurance

Determining whether you need level term life insurance involves assessing your financial responsibilities and the wellbeing of those who depend on you. This policy type is a strategic choice for securing a financial safety net within a defined period.

You may find this a viable option if:

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    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 in the next 10 to 30 years (depending on the policy term). Level term life insurance can help cover funeral costs, replace your income and provide financial support during a difficult time.

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    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 while they're still your dependents.

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    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 financially.

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    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.

Who Should Not Buy Level Term Life Insurance

While level term life insurance is a good option for many, it may not be the best choice for everyone. You may not find level term life insurance ideal if:

  • Your need for life insurance will likely extend beyond the maximum term period offered.
  • You're seeking an investment component with your life insurance, which is only available in permanent life insurance policies like whole life or universal life.
  • You anticipate significant changes in your financial responsibilities that could require more flexible coverage options.
  • You're looking for a policy that can accumulate cash value over time, which can be borrowed against if needed.
  • Your primary goal is to leave an inheritance, regardless of when you pass away, which might be better served by a permanent life insurance policy.

How to Get a Level Term Life Insurance Policy

Securing a level term life insurance policy is a straightforward process designed to align with your specific financial needs and goals. Here’s a step-by-step guide to acquiring coverage:

1
Assess Your Coverage Needs

Evaluate your financial situation to determine the amount of coverage that would be necessary to protect your dependents. Consider debts, income replacement and future obligations like education costs.

2
Choose the Term Length

Decide on the term that best matches the period of your financial obligations. Common terms are 10, 20 or 30 years.

3
Shop Around for Quotes

Obtain quotes from multiple insurance providers to compare rates. Be prepared to provide some personal information, including your health history and lifestyle habits.

4
Undergo a Medical Exam (If Required)

Some insurers may require a medical exam to assess your health status, which can affect your premium rates.

5
Review Policy Details

Carefully examine the policy's terms, including the premium amounts, death benefit and any exclusions or conditions.

6
Complete the Application

Fill out the insurance application with accurate information to avoid any issues with future claims.

7
Wait for Approval

The insurer will review your application and medical exam results to decide whether to offer you coverage and at what cost.

8
Sign the Policy and Make the First Payment

Once approved, sign the policy agreement and make the initial premium payment to start your coverage.

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MONEYGEEK DICTIONARY

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.

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Alternatives to Level Term Life Insurance

For those whose insurance needs may extend beyond the fixed term of level term life insurance, considering alternative options is a strategic step to ensure long-term financial protection.

Whole Life Insurance

A permanent life insurance option, whole life insurance, provides a death benefit and builds cash value over time, offering a combination of financial security and potential for cash accumulation.

Universal Life Insurance

With the ability to adjust premiums and death benefits, universal life insurance offers a flexible solution that adapts to changing financial situations throughout one's lifetime.

Decreasing Term Life Insurance

Tailored to match the declining balance of obligations like a mortgage, the death benefit of a decreasing term life insurance policy decreases over the term, often resulting in lower overall premium costs.

Convertible Life Insurance

This option provides the flexibility to convert your term policy into a permanent one, securing lifelong coverage without additional health examinations.

Renewable Term Life Insurance

Ideal for those who may need short-term coverage extended, this policy can be renewed at the end of the term without a medical exam, though premiums may increase.

FAQ About Level Term Life Insurance

Whether level term life insurance is right for you depends on your specific needs and circumstances. MoneyGeek answers some of the most common questions concerning level term life insurance to help you make an informed decision.

What is level term life insurance?
Should I get level term life insurance?
How much does level term life insurance cost?
Which is better, level term or decreasing term life insurance?

About Margaret Wack


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Margaret Wack, a contributing journalist at MoneyGeek, is an award-winning poet with over six years of editorial experience in digital publications. She writes about insurance, saving, investing and banking, with bylines on Money Under 30 and Bankrate.

Wack earned her Bachelor of Arts in Classics, Comparative Literature and Poetry from Smith College and her Master of Arts from St. John's College.