Level term life insurance pays the same amount no matter when you die, allowing you to make long-term plans.
A policy with a level term life insurance policy is one that provides a guaranteed death benefit for the duration of your policy. No matter if you die within the third or 23rd years of your 30-year policy, your beneficiaries will receive the same amount. You can also call it level benefit term insurance. This highlights the policy’s unchanging death benefit.
In a confusing way, level term life can be used to refer to a policy with a premium that does not change over its lifetime. Although it is a policy with a low premium term, this type of insurance is often called “level term life insurance”.
These two options often go hand in hand. A level death benefit combined with low premium payments is one option. The majority of “normal” term policies are made up of some form of level term life. When shopping online or talking to an agent about life insurance, it is important that you clarify what product you are looking for.
Benefits of level-term life insurance
Level term life insurance offers predictability as its main advantage. As long as your policy is not expired, you know exactly how much you will leave your beneficiaries. This allows you and your beneficiaries to plan with one value in mind.
Budgeting is easy because level benefits usually mean the same premiums. If you do not make any changes to the policy, the amount that you pay for your second and subsequent years of coverage will be the same.
You can also take advantage of your excellent health by purchasing level term life. You can receive the same coverage for the entire life of your policy and pay the same amount.
One of the alternatives to level term insurance is annual renewable term life insurance. These policies can be renewed every year with rates increasing as you age. Although insurance companies won’t usually require you to have additional health checks between renewals, the cost of your policy can change with inflation.
There are some drawbacks to level term life insurance
Two major disadvantages to level term life are: The first is that rates are locked in based on your current health. Not everyone is as healthy or as fit as they could be. You might be less healthy if you are starting a new diet, quitting smoking, or about to undergo a major procedure.
You could end up paying an inflated price for all twenty years if you lock in a rate for 20 years based on your medical history. You might consider getting an annual renewable policy that lasts for a shorter time. Once you have settled down and are healthier, you can apply for a longer term policy.
Another reason to consider a level-benefit policy is your declining financial situation. Consider that you want to provide coverage for your spouse in order to pay for your home, car and schooling costs if you are incapacitated. It is possible to believe that you would need $350,000 today to cover all these costs.
Imagine how your needs change as you age. In five years, you’ll pay off the car and your child will be out of school by 10. You’ll be able to pay off the car in five years and your child will be out of school in 10.
A decreasing term policy might be a good option, but it may not be the best choice.
Life insurance: Level term or decreasing term
Decreasing term insurance is life insurance that has a declining death benefit. This means that your coverage will decrease over time, hopefully in accordance with your decreasing coverage needs. Mortgage life insurance is an example of this type of coverage, though not all versions of decreasing term will be directly tied to how much you owe on your mortgage.
In fact, mortgage and decreasing life insurance are often more expensive than traditional term life insurance. You can still create your own “decreasing-term” policy easily.
You might have to reapply if you wish to increase your policy. That means new forms, a new life insurance medical exam and the whole process repeated to make sure you’re not too risky to qualify for more coverage.
It is easy to reduce your coverage. It is usually easy to reduce your coverage. Your insurer will send you a payment plan. That’s all. You’ll have less coverage in just a few minutes. As you can see, you could reduce your level of coverage after you’ve paid for school.
You could also “ladder”, your term insurance policies, to reduce coverage. You can stack term policies to achieve the coverage you need.
Three term policies may be available at the start of your coverage. These policies could total up to $350,000. The first policy lasts for five years and has a $10,000 face price — the “face value” of a policy is simply how much a policy pays. The second policy has a face worth of $240,000 and lasts for 10 years. The final policy is $100,000. It lasts for 20 years and will pay off your mortgage.
As your coverage needs decrease, this laddering system automatically reduces your coverage. Your policies will also end. Your total premium will decrease as you drop policies.
