Level Term Life Insurance

Looking for life insurance coverage at a fixed rate? Consider a level term policy. Read our guide for policy comparisons, sample quotes, plus pros and cons.

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What Is Level Term Life Insurance?

Traditional, or level term life insurance, lasts for a set period, or term, during which you pay fixed monthly premiums. It's one of the most popular life insurance options, with terms typically ranging 10-30 years.

These could be years of

• Raising children
  
• Paying off debts like student loans or a mortgage
  
• Supplementing a salary in case you die unexpectedly

Level term premiums—death benefits—don't change due to aging or health changes. There are also no fees or taxable cash value to consider.

If you are looking for basic and affordable coverage for your family if you die prematurely, level term insurance is a good option. It's also the most common type of policy offered by life insurance companies, so you won't have trouble finding a company that offers it.

How Does Level Term Life Insurance Work?

Level term life insurance works just like most other life insurance policies. Here is the process:

1. Choose a policy, term length, and death benefit.

2. Work with a life insurance agent or get a quote online to compare monthly premiums with different insurance companies.

3. When you choose a company, apply for the policy.

4. Once you are approved, you begin paying your monthly premium. You can also choose to pay premiums annually (some companies offer discounts for paying annually).

Most term policies are offered in intervals of five years, though some companies also offer year-to-year term insurance.

If you pass away during the term length, the death benefit is paid out to your beneficiary.

If you live to the end of the term length, the policy expires, and you can stop making premium payments.

Even when your level term insurance coverage ends, there are ways to continue the coverage. Keep reading to learn your options.

What Happens at the End of the Term?

Because the policy expires when the term ends, you have a few options.

• You can go without coverage
  Only do this if you have enough savings to support funeral and other end-of-life expenses, you no longer have children or other family you are supporting, and your debts (like student loans, mortgages, and credit cards) are paid off.

• You can consider extending or renewing the coverage
  People usually continue policies on a year-to-year basis, but at a much higher monthly premium.
  Most term policies do not "technically" expire until you reach age 95, so you can keep your policy in place and continue paying monthly until you decide you no longer need the coverage.
  

• You can purchase a new policy
  This is not a recommended option. You will have to undergo another health screening and medical exam to be approved. The new policy will also be much more expensive because you are older and your health has likely changed. Plus, you run a higher risk of being denied coverage.

• You can convert to permanent life insurance.
  Once the term ends, you can convert to a permanent policy that lasts your entire life. But your monthly premium for a permanent policy will be much higher than it was with a term policy.

  Not all companies offer this, so when you first purchase a policy, you should check to see if this is an option.

Pros of Level Term

• Practical Coverage
  Think about where you and your family will be in the next 10, 15, or 20 years. Or, consider how your partner and/or children would be financially impacted if you were to die unexpectedly. Life insurance coverage provides peace of mind that they will be assisted monetarily if you die.

  But also think about how different your life will be in 20 years. You'll be in a better financial and career position, you'll be more grounded, and you'll have had time to pay off debts. As your needs change, your life insurance should change. So being able to choose the length of the term is a plus.

• Inexpensive, Fixed Premiums
  Level term life insurance is likely your least expensive option for coverage. And your premiums will not change, no matter how your health changes does as you age.

• Coverage for Specific Needs
  Choose the amount of coverage and the number of years you want it. You have the option to lock in your premium, and add riders for additional coverage.

Cons of Level Term

• Premiums Rise when the Term Expires
  Once your term ends, you have the option to continue your coverage and pay on a month-by-month basis. If you choose to do this, your premiums could increase significantly.

• Poor Choice if You are Older and/or Have Poor Health
  Your monthly premium is based on your health rating, which is determined when you apply for the policy. Older people and those in poor health will face much higher premiums.
  Some age brackets have limited term length options. For example, a 70- or 80-year-old cannot qualify for a 20- or 30-year term policy. They may even have difficulty getting a 10-year policy.
  

• Temporary Coverage
  This may negatively impact your financial plan if you aren't where you thought you would be at the end of your term.

Is Level Term Life Insurance Worth It?

If you are looking for a simple, affordable life insurance policy that provides financial security during certain years of your life, level term life insurance is a great option. Here's why:

• Premiums are fixed for the term of the policy.

• The death benefit is guaranteed and not taxable to your beneficiaries.

• Monthly premiums are generally low and affordable.

• Select a term and coverage amount that is right for your situation.

• You can add optional riders for additional coverage.

The younger and healthier you are when you purchase a policy, the lower your rates. Level term policies provide flexibility to have coverage when you need it most—like during years of raising children or paying off loans and debts.

Average Level Term Life Insurance Rates

In the charts below, you can find an average monthly cost for different term and coverage options. Each is sorted by male or female, and is based on a generally healthy, non-smoker.

10-Year Term Rates - Male

10-Year Term Rates - Female

15-Year Term Rates - Male

15-Year Term Rates - Female

20-Year Term Rates - Male

20-Year Term Rates - Female

25-Year Term Rates - Male

25-Year Term Rates - Female

30-Year Term Rates - Male

30-Year Term Rates - Female

Other Common Term Life Policies

Annual Renewable Term Insurance
Similar to level term insurance, this policy lasts only one year. When that year ends, you can renew for a certain number of pre-determined years on an annual basis, as outlined in the policy.

Initially this is a cheaper option. But every year you renew, the premiums will increase. Depending on how many years you own the policy, you could end up paying higher premiums for the same amount of coverage that a level term policy would provide.

Decreasing Term Insurance

Decreasing Term Life insurance provides a death benefit that gradually shrinks over the lifetime of the policy, even though the monthly premiums remain the same.

The idea is that as you age and time goes on, you will pay off more debts and other financial obligations will decrease. Therefore, your family will need less of a financial payout after you die.

Decreasing term is commonly used as coverage for:

• Mortgage
  
• Personal loans
  
• Business loans
  
• Auto loans
  
• Student loans

The terms typically range from 1 to 30 years, and reductions in coverage occur monthly or annually.

What's the Difference Between Term and Whole Life Insurance?

Whole life insurance is the other main type of life insurance coverage. Here are key differences between the two.

Bottom Line

Term life insurance is a great choice for people who need coverage for a set period of time. These could be years of raising children or paying off debts, like student loans or a mortgage. Term life is also great for supplementing your salary should you pass away unexpectedly.

The death benefit pays out if you die within the term and it's not taxable to your beneficiaries. If the term ends and you still need coverage, you have a variety of options to continue coverage.

As always, speak to a licensed agent to find the best policy for your needs.