Level term life insurance is one of the most common types of protection. You may know it by the name term life insurance. While the names often are used interchangeably, level term coverage has some important distinctions: the premium and death benefit stay the same for the duration of coverage.
As you explore options for life insurance, here's what to know about level term coverage, including benefits, drawbacks and why it may be an option to consider.
What Is Level Term Life Insurance?
Level term is a life insurance policy where the life insurance premium and death benefit remain the same for the duration of coverage. That means the death benefit payout doesn't change regardless of when you die.
These policies can last for a 10-year term, 15-year term, 20-year term or 30-year term. The length of your coverage period may depend on your age, where you are in your career and if you have any dependents.
Like other types of life insurance coverage, a level term policy provides your beneficiaries with a death benefit that's paid out if you pass away during your coverage period. However, level term policies don't build cash value over time.
If the coverage period ends and the insured person is still living, the policy typically expires unless renewed or converted. That typically makes them a more affordable option for life insurance coverage.
How Does Level Term Life Insurance Work?
Level term insurance helps provide your loved ones with a measure of financial stability by replacing some or all of your income and generating money to pay the bills. One reason level term life insurance draws attention is its predictability. There are fewer moving parts than many people expect.
Here is the basic framework:
- Coverage Period: A fixed length of time, typically between 10 and 30 years
- Coverage Amount: Set at the start and remains the same
- Premiums: Typically stay level during the term (no rate increases)
- Death Benefit: Paid only if death occurs during the term
Unlike permanent options, such as whole life or universal life, level term life insurance does not build cash value. That distinction matters and often shapes expectations early on.
If you pass away while your coverage is in effect and your premiums are up to date, your beneficiaries may be eligible to receive your death benefit payout. If you outlive your policy once the term expires, your coverage ends. Once your coverage ends, you may purchase another life insurance policy, or you may have the option to convert your existing term coverage into a permanent policy that lasts the rest of your life.
How The Level Term Life Insurance Application Process Works
The application process for buying a level term life insurance policy is similar to other types of coverage. Steps may include:
- Deciding how much coverage and the term length you need. You can often buy a level term policy that covers 10, 15, 20 or 30 years.
- Filling out your application and completing a questionnaire covering your health history, work and financial information. You may also need to take a quick medical exam, depending on the coverage.
- Getting approved for coverage and paying your premiums. With level term coverage, your premiums never change.
Pros & Cons of Level Term Life Insurance
While level term coverage has potential benefits, there are some key drawbacks as well. Considering them can help determine if it's right for you and your family, or if a different policy fits better.
| Potential Advantages | Potential Limitations |
|---|---|
| Predictable premiums |
Coverage typically ends |
| Fixed death benefit | No cash value component |
| Typically more affordable | Renewal may cost more |
| Simple to understand | Not designed for lifelong coverage |
How Much Does Level Term Life Insurance Cost?
As with other types of life insurance, the cost of a level term policy depends on your age, coverage needs, employment, lifestyle and health. Typically, you'll find more affordable coverage if you're younger, healthier and less risky to insure.
Generally, level term life insurance rates are less than comparable whole life coverage.
Since level term premiums stay the same for the duration of coverage, you'll know exactly how much you'll pay each time. That can be a big help when budgeting your expenses.
How To Customize Your Level Term Life Insurance Policy
Level term coverage also has some flexibility, allowing you to customize your policy with additional features. These often come in the form of riders. A rider can add optional coverage features to your policy that your standard policy doesn't cover, usually for a supplemental cost.
Here are some riders and features you may be able to add to your level term policy:
Term Conversion Rider
If you want to convert your term coverage into a permanent policy, a term conversion rider can help. It allows you to convert your level term policy to a permanent one without needing a new medical exam or updating your medical information.
This rider can help remove some fears about insurability at the end of your term coverage. You'll continue your coverage, but expect that premiums will increase after the conversion.
Accelerated Death Benefit Rider
An accelerated death benefit rider (ABDR) allows you to access a portion of your death benefit while still alive and under special circumstances. If you have this rider, it can be enacted when the policyholder has a terminal, chronic, or critical illness and meets the insurer's eligibility standards.
The ADBR gives access to your death benefit for use now. It's often used to offset medical expenses. However, any funds used are deducted from your death benefit, which may impact your beneficiaries' financial stability after you're gone.
Waiver of Premium Rider
Another type of rider that can help protect your life insurance policy is a waiver of premium rider. It's an add-on to coverage that waives or pays your life insurance premiums if you are unable to work due to an illness or disability. It helps ensure your coverage doesn't expire if you can't afford the premiums.
You may have to meet specific conditions and qualifications for your insurer to enact this rider. In addition, there may be a waiting period of up to six months before taking effect. There also could be an age or time limit on the coverage.
Child Rider
You can add a child rider to your life insurance policy so it also covers your children. With this rider in effect, your insurer will pay a death benefit if your child passes away while you're covered. The death benefit is typically smaller, and coverage generally lasts until your child turns 18 or 25.
This rider may be a more cost-effective way to help ensure your children are covered as riders can often cover multiple dependents at once. Once your child ages out of this coverage, it may be possible to convert the rider into a new policy.
Level Term vs. Permanent Life Insurance
Term life insurance only lasts for a set time, as opposed to permanent life insurance, which can provide coverage for your lifetime, as long as premiums are paid. Universal life and whole life insurance are permanent life insurance options. They usually include a cash value component and remain in force as long as premiums are paid.
Level term life insurance:
- Does not include cash value
- Benefit amounts cover a specific time frame
- Typically costs less initially
Permanent life insurance may help with long-term planning goals, while term life often focuses on temporary financial needs.
Level Term vs. Decreasing Term Life Insurance
Decreasing term life insurance typically reduces the death benefit over time. It is often tied to a specific obligation, like a mortgage. The idea behind this coverage is that you may expect your beneficiaries to need less support over time.
Level term life insurance, by contrast, keeps the death benefit the same throughout the coverage period. That difference can affect how beneficiaries use the proceeds.
How To Buy a Level Term Life Insurance Policy
You may have life insurance through your employer, but it may not be enough life insurance for your needs.
The first step when buying a policy is determining how much life insurance you need. Consider factors such as:
- Age: For how many more years might my financial support be important to others?
- Family Size and Ages: Who depends on me financially, and for how long?
- Employment Status: How would a loss of my income affect my household right now?
- Income: How much income might my household need replaced, and for how long?
- Debt: What debts would remain if I passed away?
- Lifestyle: What ongoing living expenses help maintain my household's current way of life??
- Expected Final Expenses: What end-of-life expenses could my family face?
A life insurance calculator can help determine how much you need to start. Once you have a general idea of your needs, contact a financial professional for guidance.
After deciding on a policy, complete the application. For the underwriting process, you may have to provide general personal information, medical history, lifestyle and employment information. Your insurer will determine if you are insurable and the risk you may present to them, which is reflected in your premium costs.
If you're approved, sign the paperwork and pay your first premium. Your coverage remains active as long as you continue paying your premiums for the duration of the term.
Finally, consider scheduling time each year to review your policy. You may want to update your beneficiary information if you've had any significant life changes, such as a marriage, birth or divorce..
Conclusion
Level term life insurance stands out for its simplicity, consistency, and time-based focus. It may help address temporary financial needs while offering clarity around costs and coverage.
As you explore your options, consider discussing your financial strategy with a financial professional. They can help you decide on a life insurance policy that suits your budget and long-term goals.
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