If you’re in the market for life insurance, you may have realized that you have several options. And, since life insurance is a financial planning product, it’s important that you choose an option that will meet your needs and the needs of the loved ones you’re purchasing it to protect.

One popular type of life insurance to consider is known as a level term life insurance policy. These policies offer a significant level of stability, both in premiums as well as your benefit amount, making financial planning a simpler process. But what is level term life insurance, and will it fit into your financial plan?

A level term life insurance policy is designed to maintain the same term and death benefit throughout the life of the policy. That’s in stark contrast to other types of policies that may have a reduced death benefit depending on when you die or that may come with variable premiums.

We’ve put a guide together below to explain what this type of life insurance policy is and help you decide if it’s right for you.

Benefits of Level Term Life Insurance

There are several benefits that come with a level term life insurance policy. First, a level term policy comes with premiums and a death benefit that won’t change over time. That’s important because no matter when the insured dies, their beneficiaries will receive the full death benefit.

Level premiums and death benefits also make these types of insurance policies easy to understand. You’ll know exactly what you’re purchasing and for what price when you buy your policy.

Of course, the death benefit attached to a level term life insurance policy is also important. It provides financial protection for your loved ones if they’re no longer able to depend on your income.

Types of Term Life Insurance

There are several different types of term life insurance. Some of the most popular, and how they compare to level term life policies, are listed below:

• Increasing Term Life Insurance: Increasing term life insurance has a death benefit that increases over time, typically to keep up with inflation. This type of insurance may be well-suited for those who are concerned that inflation may hinder their beneficiaries’ finances and want to account for that in their life insurance policy.
• Decreasing Term Life Insurance: Decreasing term life insurance is a lower-cost option with a death benefit that decreases every year. This may be a strong option for those who need the lowest-cost option or those who expect to need a lower benefit over time, perhaps because their children are becoming adults.

Customization and Add-ons

Life insurance should never be a boxed, one-size-fits-all product. Instead, it’s important to customize your life insurance policy to your needs. Add-ons, known as riders, are the most effective way to do so.

Riders are additional points of coverage that you can add to your policy for an additional cost. For example, you may add a return-of-premium rider to your life insurance policy to hedge your investment. In doing so, you’ll receive 100% of the premiums you’ve paid back if you outlive the policy’s term.

There are several other riders to choose from. It’s important to discuss your options with your life insurance agent to customize your policy for your needs.

Steps to Getting a Level Term Policy

Level benefit term life insurance is relatively easy to get. Here are the steps in the process:

• Find a Policy That Fits Your Needs: Start by comparing level term life insurance policies and finding one that you believe fits your needs.
• Apply: Next, apply for the policy you’re interested in. When you do, be as honest as possible, especially as it relates to your medical history.
• Complete the Requirements: Depending on the type of policy you opt for, you may be required to undergo a medical exam or complete other required tasks. Be sure to complete these as agreed to ensure your policy becomes active.
• Enjoy Your Insurance: Once you pass your medical exam, you’ll be insured as long as you pay your premiums. So enjoy the peace of mind that comes with knowing your loved ones are financially protected.

Cost Considerations and Budgeting

It’s important to consider the cost of a life insurance policy before you purchase it. After all, there is no benefit to a policy if the premiums don’t fit into your budget and you ultimately lose it anyway.

The good news is that level term life insurance is relatively inexpensive. That’s especially true when you compare these policies to other options like whole life insurance or increasing term life insurance. Nonetheless, before you shop for a policy, consider your budget and how a policy may fit into it.

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Renewal and Conversion Options

Once you have your policy for a while, it’s time to start thinking about what will happen when your policy expires. You’ll typically have two options. You can either renew your policy or you can convert it into a permanent life insurance policy.

That’s an important decision to consider. After all, permanent life insurance is typically more expensive than term life. So, if you move forward with the conversion, you’ll have to be prepared for higher premiums and, often, a lower death benefit. On the other hand, permanent life insurance remains in effect for your whole life, no matter how long that may be. So it can provide lifelong protection for your loved ones.

Impact of Health and Age on Premiums

The most important factors that insurance companies typically consider to determine your premiums are your health and age. Here’s why:

• Health: If you’re in good health, you have a lower likelihood of dying anytime soon. As such, you’ll pay lower premiums than someone with pre-existing health conditions.
• Age: The older you are, the higher your risk of death is. Younger consumers typically pay less than their older counterparts.

Tips for locking in the best rates:

• Purchase life insurance now. The longer you wait, the higher your premiums will likely be.
• Compare your options. Some providers charge more than others.
• Don’t purchase too much coverage. Carefully consider how much coverage you actually need, as higher coverage amounts typically come with higher premiums.

Life Changes and Policy Review

Life happens, and as it does, your financial and life insurance needs will change. For example, if you’re not married, you’ll typically need a lower death benefit than someone married and concerned about their spouse’s financial stability. Other events, like having children, taking out a mortgage, or even taking on a new job, can all play a role in your life insurance needs.

It’s important to regularly review and update your policy to ensure that it meets those needs. In particular, you should consider a life insurance policy checkup at least once or twice annually.

How to Choose the Right Coverage Amount

Choosing the right coverage amount is critical to purchasing a policy that fits your needs. Consider the following as you choose the coverage amount that fits you best:

• Who you’re protecting: Is your aim for your life insurance to provide financial stability for your spouse, children, or both? How much money will they need to maintain their current lifestyle?
• Will you be covering debt?: If you have a mortgage or other debts that may fall on your spouse, it may be wise to consider adding the cost of those debts into your coverage amount.
• Additional Costs: When you die, household chores you handle may become additional expenses. For example, if you mow the lawn or take care of children while your spouse is at work, they may need to pay service providers to handle those tasks when you die. Consider the cost of those services as you determine the right life insurance coverage amount for you.

Comparing Level Term Life Insurance Providers

You should never purchase life insurance from the first provider you come across. After all, it’s important to make sure you work with a reputable insurance company. Here are some criteria to consider as you compare providers:

• AM Best Ratings: It’s critical that your life insurance provider is financially stable. AM Best Ratings let you know how financially stable they are, so be sure to look into them.
• Consumer Ratings: It’s also typically a wise idea to look for consumer reviews about the providers you’re interested in. If most consumers who use those providers have had good experiences, chances are that you will too.
• Coverage Options: Some providers offer more robust coverage options than others. Make sure that the provider you choose offers the coverage options that are important to you.

Common Myths and Misconceptions

Myths can be dangerous. That’s especially true when those myths surround a financial product like level term life insurance. After all, misconceptions can stop consumers from purchasing products they need or lead them to purchase products they don’t need.

One of the most common myths about level term life insurance is that it’s too expensive for the average person. That couldn’t be further from the truth. Some policies cost under $15 per month, and even those with high benefit amounts can be affordable for most budgets.

Another common myth is that you don’t get anything from level term life insurance if you don’t die during the term. But that’s not always true either. For example, if you die, your beneficiaries will enjoy your death benefit, and if you outlive the policy, you’ll get your premiums back.

Tax Implications

While life insurance premiums aren’t typically tax deductible, there are tax benefits associated with level term policies. That’s especially true when considering your beneficiaries.

In most cases, your beneficiaries will not have to report the life insurance benefits they receive as income. Moreover, your beneficiaries won’t typically need to pay a death tax on life insurance benefits. That is, as long as the benefit is paid directly to the beneficiary and not included as part of your estate.

Frequently Asked Questions (FAQs)

Find answers to some of the most common questions about level term life insurance below.

How much does a level term life insurance policy cost?

The premiums on level term life insurance vary based on factors like your age, health, gender, and coverage amount. However, many applicants can purchase this type of life insurance for under $15 per month.

What’s the difference between level term and increasing term?

The death benefit on level term life insurance stays the same for the entire term. The death benefit on increasing term life insurance will increase every year.

What’s the difference between level term and decreasing term?

The death benefit on level term life insurance stays the same for the entire term. The death benefit on decreasing term life insurance will drop annually.

What’s the difference between level term and renewable term?

Renewable term life insurance guarantees your ability to renew the policy at the end of the term. However, with level term life insurance, your ability to renew it typically depends on your ability to qualify for a new policy.

The Bottom Line

Level term life insurance is a type of insurance policy that’s highly predictable thanks to the fact that it comes with a coverage amount and premiums that won’t change over time. This makes financial planning simple and provides financial stability for your loved ones.

If you’re trying to decide if this type of life insurance is right for you, think about your budget, what you’re looking for in a life insurance policy, and whether or not term life makes sense for you. While level term life insurance is a lower-cost option when compared to permanent life insurance or increasing term life insurance, it’s important to ensure that it fits within your financial plan before you purchase a policy.

Contact Information for Further Assistance

If you’d like more personalized advice about how level life insurance fits in your financial plan, consider reaching out to the professionals at Fidelity Life Association by calling (800) 482-6616. Our experts are available Monday through Thursday from 7 a.m. to 9 p.m, Friday from 7 a.m. to 8 p.m., and Saturday and Sunday from 8am to 5pm Central Time.

What to read next:

• What is permanent life insurance?
• What is term life insurance?
• How much does life insurance cost?

At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible. We encourage you to speak with your insurance representative if you have additional questions and make sure you read your policy contract to fully understand your coverage.