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Level Term Life Insurance Explained

Choosing the right life insurance policy is essential to financial planning and protecting your family. Among the many options, level-term life insurance stands out for its simplicity while still offering many options to suit your goals. This article breaks down what level term life insurance is, how it compares to other insurance types, and why it might be the right choice for your needs.

Key takeaways:

Level term life insurance — what it is and how does it work?

Level term life insurance is a policy where the death benefit and premiums remain the same throughout the term. It offers stability and predictability and provides a straightforward solution for ensuring financial protection for loved ones without complexities.

It is a type of term life insurance that offers coverage for a set number of years, usually 10 to 30 years. You pay a set premium for the coverage, and the premium and death benefit never change.

If the insured dies during the policy term, the insurer pays a tax-free death benefit to the beneficiaries. The amount paid out is the same whether the insured dies near the start or end of your policy.

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Two types of term life insurance

There are two main types of term life insurance that one should be aware of — level term and decreasing term.

  • Level Term. This life insurance policy provides a fixed death benefit that remains the same until the policy expires. This guarantees a consistent payout for beneficiaries regardless of when the policyholder dies.
  • Decreasing term. This life insurance policy aligns with decreasing obligations like mortgages and business loans. The death benefit decreases over time and may be smaller or zero by the end of the term. It's a cost-effective option for covering debts.

Choose between a level term and a decreasing term based on your preferences. Level term offers predictability while decreasing term saves costs. Knowing the differences can help you decide.

The cost of level term life insurance

When considering any insurance policy, cost is often a primary concern. With level term life insurance, several factors influence the premium rates:

  • Age. Typically, younger individuals receive lower premium rates. As age increases, so does the risk for the insurer, leading to higher premiums.
  • Health. A comprehensive medical examination often precedes the policy issuance. Those in good health are likely to be offered more favorable rates.
  • Term length. The duration of the policy can impact the cost. Shorter terms might have lower premiums, while longer terms could be more expensive due to the extended coverage period.
  • Coverage amount. The chosen death benefit amount plays a role. A higher death benefit usually means a higher premium.

Level term vs. whole life insurance

Level-term and whole-life insurance differ in structure, benefits, and costs. It's important to understand these differences when choosing an insurance policy.

Policy aspectLevel term life insuranceWhole life insurance
Duration of coverageThis policy covers a specific term, typically 10 to 30 years. Once the term ends, so does the coverage unless the policy is renewed or converted.This is a permanent form of life insurance, offering coverage for the entirety of the policyholder's life, providing the premiums continue to be paid.
PremiumsRemain fixed throughout the term, providing cost predictability.Generally higher but also remain consistent. Part of the premium contributes to a cash value component, which can grow over time.
Cash valueIt doesn't have a cash value component. It's purely a death-benefit policy.Over time, a portion of the premiums accumulates as cash value. This can be borrowed against or even withdrawn, offering savings or investment.
Death benefitRemains constant throughout the term.While it also provides a guaranteed death benefit, the amount can grow if dividends are reinvested or the cash value appreciates.

Level-term life insurance offers simplicity and often comes at a lower cost. On the other hand, whole life insurance provides lifelong coverage combined with an investment component. The choice between the two should be based on individual financial goals, coverage needs, and budget considerations.

What happens at the end of level term life insurance?

The end of a level-term life insurance policy's term presents the policyholder with various options. Here is what usually happens:

Expiration of the policy

With a level-term life insurance policy, coverage ends, and no death benefit payout is given once the term ends. The premiums paid are not refunded unless a "return or premium" rider was added to the policy. The policy only protects the specified term and is not an investment or savings option.

Renewal options

Some policies offer the option to renew the coverage for another term. However, it's essential to note that the renewal might come at a higher premium rate, reflecting the older age of the insured and potentially changing health conditions.


Many level term policies come with a convertibility feature, allowing policyholders to convert their term policy into a permanent life insurance policy, like whole or universal life. This conversion can often be done without a medical exam, but the premiums for the new policy will likely be higher, reflecting the lifelong coverage and added benefits.

Purchasing a new policy

Suppose the policyholder still requires coverage but doesn't wish to renew or convert the existing policy. In that case, they can purchase a new term or permanent policy. This would typically require a new medical examination and underwriting process. The end of a term life policy does not mean the end of life insurance coverage. Policyholders can continue coverage based on their needs and finances.

Should I get a level term life insurance policy?

Consider your financial obligations and life stage when choosing level-term life insurance. It can be affordable and simple for young families or business owners. Evaluate the duration and coverage needed and weigh the cost against the benefit. Consult with insurance professionals to make an informed decision.

Tips for purchasing level term life insurance

When getting a term life insurance policy, consider your coverage needs and the length of the term.

  1. Compare quotes from multiple providers and review policy details, including any exclusions.
  2. Be honest in your medical disclosures, and consider adding riders if needed.
  3. It is also recommended to seek professional advice for personalized insights.

Purchasing level term life insurance requires careful consideration and research. By following these tips and being well-informed, you can secure the best policy for your needs and ensure peace of mind for you and your loved ones.

Level term life insurance offers simplicity, affordability, and predictability for those who require coverage during specific life stages or for defined financial obligations. When considering options, assess your financial needs, compare providers, and consider long-term implications.


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