Are you looking to find out what is level term life insurance? Well, you’re in the right place.
In premise, level term insurance is a type of coverage that guarantees the same premiums throughout the entire length of a contract, while the amount of coverage raises.
In this article, we will cover this type of life insurance in-depth.
So keep reading to learn more.
What Is Level Term Life Insurance?
As mentioned earlier, level term life insurance is a type of coverage that guarantees premiums that will remain the same throughout the length of a contract, while the amount of coverage continues to increase.
As a result, this insurance coverage can be quite beneficial over the long-term, as the policyholder will continue to pay the same amount but will have greater access to greater benefits as the agreement matures.
Typically, a policy will have a term of 10-30 years, based on the personal needs of the policyholder. Level term life insurance policies are different than regular term policies, which have the premium rates increase as it matures, which is a reverse.
So what is level term life insurance? A great opportunity for many.
So How Does It Work?
The premiums for level term life insurance start out higher than regular policies. However, towards the end of the contract, the premiums are most evidently a better proposition. This is due to the fact that the higher premium is offset by the rise in coverage over the long-term, especially when a policyholder has many medical concerns.
Policies with lower premiums and similar coverage don’t usually see a rise in coverage as they age. For some, this limits the benefits that come from having lower payments on premiums. The attraction of better coverage with no increase in premiums is the key qualifier for some investors who will choose level term life insurance, as long as they are financially capable of tolerating the payments.
The policy itself is under the term life insurance, thus it can only provide coverage for a designated time frame, and it only coincides with a death benefit. As opposed to a savings part as you would see in whole life coverage. To determine whether or not level term insurance is preferred, think about the length of time that needs coverage.
For instance, if the purpose of the death benefit is to provide some income to support the young children and fund their expenses, a 20-year policy might be applicable. However, if these kids are already teenagers, a 10-year policy will suffice.
Also, some life insurance policies are particularly vulnerable to rate spikes. With level term insurance, the premiums are locked in and will never be changed, unless a policyholder wants a change. The payout for the insurance is also locked in unless requested otherwise.
If the policyholder passes during the term, the family will receive a cash payout that can be used for whatever needs that come up.
An Example of Level Term Life Insurance
In premise, the timeframe and age of the policyholder are very important when it comes to determining if the level term life insurance is a viable option. The average term and premium that is chosen by customers are about $600000 and 20 years.
For instance, suppose two male buddies, Mick and John, both aged 40 years and quite healthy, opt-in for life insurance. Mick buys the guaranteed level term policy at $37 each month with a 20-year term.
But John decides that he might need the plan for about 5 years or until he pays off his current debts. So he chooses to opt-in for a yearly renewable policy that starts at $20 and remains the same for the first 5 years.
Through this timeframe, Mick pays 37$ per month, and John $20 per month. If John chooses to cash out the policy in the fifth year, he will have saved lots of money when compared against what Mick has paid.
But what if John doesn’t cash out? What if he chose to buy a house and wants to hold on to the policy longer?
Well, now he’s at a disadvantage because, in the sixth year, John will be 45 years of age, thus moving into the high-risk category. Because of this, his annual rate might see a spike of 200%.
So now he will be paying $654 a year against the $444 that Mick was paying. After turning 45, the rates will continue to increase year by year.
So after age 56, they will go up even more. By the term of 20 years, at age 60, by sticking with his policy, John will be paying over $2600 each year, whereas Mick is still benefiting from his locked-in $444.
That is a great deal of difference.
Level Term Insurance vs Decreasing Term Insurance
While level term insurance and decreasing term insurance are quite similar, there are some important differences. Which are also applicable to different circumstances.
With level term insurance, the policy pays benefits if the policyholder passes away during the term. If a death happens outside of the term, there will be no payout.
With decreasing term insurance, the amount of coverage will reduce over time, much like a repayment mortgage does. This type of insurance is purchased to pay off specific debts. The policy will ensure that upon death, the repayment mortgage or other debt is settled.
There are many other speciality life insurance types, such as over 50+ life insurance. There is also joint insurance, in which a couple takes out individual policies, which will cover both lives on a first-death basis.
Life Insurance Quotes
Now that you know what is level term life insurance, you are well on your way to deciding whether or not it’s a good solution for you. As you’ve come to realize, it’s a great opportunity for many, but is it so for you?
If you’re interested in figuring that out, get in touch with us and we will happily accommodate your needs.