What is level-term life insurance?

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. (For more information, read our “Mortgage Life Insurance“).

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.

Case Studies: Understanding Level-Term Life Insurance

Case Study 1: Mortgage Protection

John, a homeowner with a mortgage, wants to ensure that his family will be financially protected in the event of his untimely death. He purchases a level-term life insurance policy with a coverage period that matches the remaining term of his mortgage. This way, if John passes away within that period, the policy’s death benefit can help his family pay off the mortgage and secure their home.

Case Study 2: Income Replacement

Sarah, a young professional with dependents, wants to ensure that her family’s financial needs are met in case of her premature death. She decides to purchase a level-term life insurance policy that provides coverage until her children are expected to be financially independent. The death benefit can help replace Sarah’s lost income and support her family’s living expenses, such as education costs and daily living expenses.

Case Study 3: Business Continuity

Mike, a small business owner, wants to safeguard the continuity of his business in the event of his death. He purchases a level-term life insurance policy to cover a specific term that aligns with his business’s growth and stability plans. In case of his passing within that period, the policy’s death benefit can help fund the business’s succession plan or provide liquidity to handle financial obligations.

Case Study 4: Debt Repayment

Samantha carries significant debt, including student loans and credit card debt. She purchases a level-term life insurance policy with a coverage period that matches the expected duration needed to pay off her debts. If Samantha were to pass away within that timeframe, the policy’s death benefit can be used to settle her outstanding debts, relieving her family from the financial burden.

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