Level Term Life Insurance Explained | The Motley Fool (2024)

When consumers buy life insurance, they pay premiums to provide protection for loved ones. Level term life insurance keeps those premiums the same the entire time coverage is in effect. Here's what potential policyholders need to know about level term insurance.

What is a level term life insurance policy?

Level term term life insurance is a specific type of term life insurance. Like all life insurance policies, the coverage is in effect for a set period of time, such as 15, 20, or 30 years. If the policyholder passes during the time the insurance is effective, the death benefit is paid to chosen beneficiaries.

The key defining feature of level term life insurance is that the premiums are level and so is the death benefit. That means the premiums stay exactly the same for the entire time the policyholder is covered. They do not go up as the policyholder ages. The death benefit also remains the same for the life of the coverage.

How does level term life insurance work?

For many people, level term life insurance is the best term life insurance because it provides predictability. Here's how it works:

  1. A consumer applies for term life insurance coverage. This provides coverage for a limited time. The death benefit pays out if the policyholder dies during the term.
  2. The insurer evaluates their health status and likelihood of death during the coverage term. Based on this, the insurer sets premiums.
  3. Premiums are paid monthly or annually. The premiums never change for the entire time that the policyholder has coverage.
  4. The death benefit is paid out if the policyholder dies. The death benefit never changes during the entire term of coverage.

If the policyholder doesn't pass away during the coverage term, no death benefit is paid. The policyholder is out whatever they paid in premiums.

Life insurance types compared

Level term life insurance is just one of several types of life insurance. Here are some other options.

Level term vs. decreasing term life insurance

Level premium term life insurance policies provide predictability in both the premiums and monthly payment. Decreasing term life insurance works differently. The premiums stay the same, just as with level term life insurance. But the death benefit goes down over time. This type of policy can provide insufficient protection for loved ones over time.

Level term vs. annual renewable term life insurance

Annual renewable term life insurance is another alternative to level term life insurance. The policy has a one-year term. But policyholders have the option to renew coverage annually. However, the price can go up upon renewal. This type of policy starts out less expensive than level term life insurance. But costs can go up.

Level term vs. whole life insurance

Whole life insurance is an alternative to level term life insurance. Unlike term life insurance, a whole life insurance policy is in effect indefinitely. There's no set term of coverage. As long as the policy is kept active by paying premiums, the death benefit will be paid.

Whole life insurance is much more expensive than level term life insurance. That's not just because it remains in effect for life. It also acquires a cash value. Extra money is paid in with the premiums and is invested. Policyholders can surrender their policy for cash or borrow against it.

It is important to compare term vs. whole life insurance carefully to decide which is best.

Pros of level term life insurance

Level term life insurance has some significant benefits:

  • It is less expensive than most other types of life insurance
  • There are no surprises when it comes to the premium or death benefits
  • Policyholders can choose the term of coverage they need

Cons of level term life insurance

There are also some disadvantages. Here are the biggest downsides of level term life insurance:

  • It starts out more expensive than alternatives such as annual renewable coverage
  • The death benefit won't pay out if the policyholder doesn't pass during the coverage term
  • There's no cash value and the insurance isn't an investment

How much does level term life insurance cost?

Level term life insurance rates vary depending on:

  • Health status
  • Age when purchasing the policy
  • Death benefit

To find the most affordable level term life insurance rates, it's best to shop around and get quotes from several insurers.

Should I get level term life insurance?

Buying life insurance is important for anyone with loved ones depending on them. This could be people depending on their income or on services they provide, such as taking care of children or aging parents.

For most people, level term life insurance is the ideal type of insurance coverage. It provides certainty for those who buy protection since premiums and the death benefit don't change. Policyholders can choose to pay for coverage only during the period of time they need. Plus, it's less expensive than whole life insurance. And while it doesn't have an investment component, most people can get better returns elsewhere rather than by investing in whole life coverage.

How to find a level term life insurance policy

To find the right 30-year level term life insurance policy, it's a good idea to get quotes from several insurers. Compare the cost of coverage as well as the reputation of the different insurers. It's important to choose a company that has solid financial credentials and that pays claims promptly.


  • Level term life insurance is generally a better choice. Decreasing term life insurance coverage reduces the death benefit over time. It typically will not provide enough protection for loved ones over the long run.

  • A 10-year level term life insurance policy is life insurance coverage that provides protection for 10 years. If the policyholder passes away during the 10 years after buying coverage, the death benefit will be paid to beneficiaries. The premiums and death benefits do not change over the 10 years. At the end of that period, coverage ends and no premiums are returned. The policyholder may be able to renew coverage or convert to a whole life policy but costs of coverage could rise.

  • Many insurers provide the opportunity to convert term life policies to whole life policies. This is possible during the conversion period. Insurance policies specify when that period is. Whole life policies are more expensive, so, converting level term insurance to whole life insurance would make premiums increase substantially.

  • It's a good idea to have term life insurance for as long as someone is dependent on the policyholder for income or for services. For many people, this is 10 to 30 years. Once a covered individual's children have grown and no longer need support or the policyholder has saved sufficient funds so no one relies on their income, then coverage may no longer be needed.

  • It is possible to buy two term insurance policies. However, insurers typically ask applicants if they have any other coverage. Insurers may deny a policy if they believe it will result in the policyholder becoming over-insured.

  • If a policyholder outlives their term life insurance, then no death benefit is paid out. The insurer loses the premiums paid in. Sometimes, the policyholder can renew their policy or convert it to a term life policy. This could result in an increase in premium costs. The ability to convert or renew a policy depends on what the insurance contract permits. Policyholders should read the fine print to find out if and when this is allowed.

  • Term life insurance is not an investment. Whole life insurance has an investment component, but term life insurance does not. However, term life insurance is a good purchase for most people. It provides very affordable protection in case of an untimely death. Premiums are much less than for whole life insurance. And it ensures the policyholder's loved ones will be provided for after the policyholder passes.

As an expert in insurance and financial planning, I bring a wealth of knowledge and experience to provide insights into the concept of level term life insurance. My expertise in the field is substantiated by a background in financial services, comprehensive research on insurance products, and a track record of assisting individuals in making informed decisions about their financial security.

Now, let's delve into the key concepts discussed in the article about level term life insurance:

  1. Level Term Life Insurance Overview:

    • Level term life insurance is a specific type of term life insurance where the premiums and the death benefit remain constant throughout the coverage period.
    • Coverage is typically for a predetermined duration, such as 15, 20, or 30 years.
    • The death benefit is paid to chosen beneficiaries if the policyholder passes away during the coverage period.
  2. How Level Term Life Insurance Works:

    • Consumers apply for coverage, and premiums are set based on health status and life expectancy.
    • Premiums remain fixed throughout the entire coverage period.
    • The death benefit is paid out to beneficiaries if the policyholder dies during the term.
    • If the policyholder survives the term, no death benefit is paid, and the premiums paid are not returned.
  3. Comparison with Other Insurance Types:

    • Level Term vs. Decreasing Term Life Insurance:
      • In level term, premiums and death benefits remain constant, while in decreasing term, the death benefit decreases over time.
    • Level Term vs. Annual Renewable Term Life Insurance:
      • Annual renewable term allows policyholders to renew coverage annually, but costs may increase over time.
    • Level Term vs. Whole Life Insurance:
      • Whole life insurance remains in effect indefinitely and includes a cash value component, making it more expensive than level term.
  4. Pros and Cons of Level Term Life Insurance:

    • Pros:
      • Less expensive compared to many other life insurance types.
      • Predictable premiums and death benefits.
      • Flexibility in choosing the coverage term.
    • Cons:
      • Initially more expensive than some alternatives.
      • No cash value or investment component.
      • Death benefit only pays if the policyholder dies during the coverage term.
  5. Cost Factors:

    • Level term life insurance rates vary based on health status, age at the time of purchase, and the chosen death benefit.
    • Shopping around and obtaining quotes from multiple insurers is recommended to find the most affordable rates.
  6. Decision-Making:

    • Buying life insurance is crucial for those with dependents.
    • Level term life insurance is often considered ideal due to its predictability and affordability.
    • The decision should be based on individual needs, financial circ*mstances, and the term of coverage required.
  7. FAQs:

    • Answers to frequently asked questions provide additional clarity on topics such as the choice between level and decreasing term, the duration of coverage, converting term policies to whole life, and the purpose of having term insurance.

In summary, level term life insurance offers a balance between affordability and predictability, making it a suitable choice for many individuals seeking financial protection for their loved ones.

Level Term Life Insurance Explained | The Motley Fool (2024)


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