Understanding Level Term Life Insurance (2024)

Planning for your family’s future without you is not a fun task. But it is necessary one if you wish to provide them with life insurance benefits after you die. Level term life insurance can be a good choice because the payments stay the same over the course of the policy term and so does the death benefit.

Term life insurance in general is one of the most affordable types of life insurance you can buy. Here’s a closer look at level term life insurance to see if it’s a good fit for you.

How Level Term Life Insurance Works

Here are key points about level term life insurance:

• Applications often require a life insurance medical exam.
• You choose the amount of coverage and a length of policy, or term, which is typically 5, 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, the insurer pays the death benefit to the beneficiaries listed on your policy.
• The death benefit is paid tax-free.
• If you outlive your policy, the life insurance coverage ends.
• Unless the policy can be renewed, you’ll need to buy another policy if you still need life insurance.

How Much Does Level Term Life Insurance Cost?

You might be surprised at how affordable term life insurance can be. Here are sample rates.

Average Rates for a 40-Year-Old Male for $250,000 in Term Life Insurance

Average Rates for a 40-Year-Old Female for $250,000 in Term Life Insurance

Related: Best Life Insurance Companies Of 2024

Pros and Cons of Level Term Life Insurance

Here are potential benefits and drawbacks to level term life:

Pros:

• Level term life insurance is affordable and offers a number of term lengths to choose from, so you can buy a policy that best matches the time frame in which you need life insurance.
• The level premiums mean there aren’t any surprises in terms of budgeting.
• There is no cash value in term life insurance, so you’re paying only for life insurance protection.

Cons:

• You have to buy a new policy if you outlive your policy term and still need life insurance.
• Because you will be older when the policy expires, and possibly with new health conditions, you’ll pay more if you need to buy another policy.

How to Customize Level Term Life Insurance

Here are a few ways you can add features to a level term life policy.

Guaranteed renewability riders let you renew the policy at the end of the term, on a year-to-year basis, although at a higher price—possibly much higher. Guaranteed renewability may make financial sense if you have developed health conditions that would make buying a new policy unaffordable.

Waiver of premium riders allow you to keep your policy in effect by paying your bill for you if you become disabled and can’t work.

A term life conversion option is generally included in term life policies free of charge. It lets you convert part or all of the term life policy into permanent life insurance, such as a universal life insurance policy. There is usually a window of time after you buy the policy to convert term life to permanent life insurance. Some companies offer an “extended conversion” rider that gives you more time to make a conversion.

Level Term Life Insurance vs. Decreasing Term Life

With a decreasing term life insurance policy, the death benefit gets smaller as the policy term progresses.

This decline in death benefits usually occurs in one-year increments. Because the death benefit goes down over time, decreasing term life policies are usually less expensive than level term life policies.

Level term life, on the other hand, has a death benefit that doesn’t change.

Decreasing term life plans may be a good fit for those paying off a significant debt, such as a mortgage or business loan, where the balance is decreasing.

Other Types of Term Life Insurance

Annual renewable term life insurance. With this type of life insurance, you can renew every year and your premium will likely increase each time, but you typically don’t have to reapply and take another medical exam. It’s best for stop-gap coverage if you need only short-term coverage.

Return of premium term life insurance. These plans will refund you the premium that you paid if you live longer than the policy. Because of this refund, these policies are more expensive to buy.

Guaranteed and simplified issue life insurance. You don’t have to take a medical exam to buy these plans. The downside is that these plans are generally very expensive and offer very low death benefits, usually between $10,000 and $25,000. Guaranteed issue policies are usually best for those who just need coverage for funeral expenses or who have medical options that make other types of plans cost prohibitive.

Should You Get a Level Term Life Insurance Policy?

A level term life insurance policy may be a good fit for people raising families. A death benefit could be applied to school tuition payments, mortgage payments or other key expenses of a growing family if the insured parent dies.

Even a young couple with no plans for children who recently bought a home may want to buy level term life coverage. For instance, let’s say you have a 30-year mortgage. A level term life insurance policy with a 30-year policy period could cover mortgage expenses if the insured spouse dies.

To get the best deal on a level term life insurance policy, you’ll want to shop around. Term life insurance quotes are free and easy to get. Once you decide on your coverage amount and term length, simply compare prices for that coverage. Here are the best term life insurance companies according to Forbes Advisor’s ratings.