Many people do not distinguish between term life insurance and level term life insurance and consider the two synonyms. However, the reality of the matter is that both are different products with different coverage components. So need to know the difference before applying for the policy. Otherwise, your premiums will increase yearly, causing you to pay more than expected.
Level term life coverage is a type of term life insurance that comes with a fixed amount of death benefit and premiums throughout the duration of the policy. In other words, the insured’s beneficiary gets the same death coverage whether you die in the third or last year of the policy. It is the most common and popular life insurance product because of its simplified and affordable financial protection for the insured and his family.
Understanding Level Term Life Insurance
Like other life insurance policies, level-term life insurance protects your family when you are no longer among them. It takes care of the debts and funeral expenses at your death. It replaces your income for a specified time so that your family has a financial cushion in the event of your death, and they do not have to worry about managing the financial burden of the funeral and later expenses amid this sudden event.
If you are married with two young children and a mortgage, buying a level-term life coverage would be a rational decision to provide them with a protective shield for uncertain times. Your family depends on your income, and you are their only provider. Having term life coverage at your disposal will give you peace of mind over the years. With a level term policy, your death benefits do not decrease as the policy ages but remain the same from the first to the last year.
The policy’s stable premiums and coverage amount throughout the coverage duration is the unique feature of level term insurance. Other components of the policy, however, work in the same manner. They include:
You choose the coverage amount and the policy duration. The cost of the policy depends on these choices and according to your age and health.
- You pay monthly or annual premiums.
- If you die during the term of the policy, your designated beneficiary gets a tax-free cash benefit to cover your final expenses and other costs.
- If you outlive the policy, it expires, and you no longer pay the premiums.
- If you outlive the policy, you can renew it with additional charges.
The application process for the policy is simple. It requires you to fill out a questionnaire about your health. You may require a medical exam depending on which insurer you buy the policy from. However, some insurance companies offer no-medical-exam insurance policies if applicants meet certain conditions. After that, you start paying your premiums. Your first premium amount activates your policy, and then you have to pay the premiums monthly or annually.
Benefits and Drawbacks of Term Life Insurance
Level-term life coverage is a simple and affordable life coverage for many people. However, before making a final decision, you need to see both the pros and cons of the policy to make an informed decision.
Benefits
Predictability: The level-term policy gives you a set amount of death benefits over time. This means that if you die during the policy term, your family can make better plans with a single dollar in their mind. It gives the beneficiaries a precise approach to not overspending or underspending the earth benefits as they have a clear idea about the coverage amount.
Helps budgeting: Fix the premium amount of the level term policy allows you to have a set budget amount. You know that you will pay the same amount year-over-year unless you change the policy. It provides you clarity in maintaining your budget.
Less expensive: Term life insurance policies are generally less expensive than other life insurance policy options. Level term policy allows you to lock in a rate and coverage amount according to your health status. If you are young and healthy, buying 10, 20, or even 30 years of coverage is affordable.
Drawbacks
Limited coverage: The coverage of level-term life insurance is not for the whole life but only provides the death benefits in the limited amount of time you choose. Your beneficiaries get the amount if you die in the designated duration, but if you outlive the policy, you do not get the coverage, and your policy expires.
No cash-value accumulation: Unlike whole life insurance policy, term level policy does not provide the option of cash-value accumulation. You only get the fixed coverage of the policy that you pay premiums over the years.
Premiums are not refunded: Your policy expires as the term of the policy ends. Like car or health insurance, you don’t get the premiums back if you don’t need to use the coverage.
Cost
Insuring a healthy 35-year-old for a level term life insurance policy with a 20-year term and a $50,000 death benefit payout should cost less than $24 per month.
Each person’s term life insurance premiums will differ depending on age, health, medical history, and other risk factors, including hobbies and driving history.
Level-term life coverage is the most cost-effective option for most people, particularly those in excellent health and who don’t engage in risky activities. However, not every life insurance company assesses your rates the same way. Speaking with a qualified advisor is the simplest approach to determining how much your term life insurance will cost.
Can I Customize My Level Term Life Insurance
Riders are optional clauses that may offer additional advantages and protection.1. A term policy might last up to 30 years, and a lot can happen during that period. Unexpected changes might occur to your health. You could eventually lose the capacity to work. For an extra fee, riders may offer greater financial assistance and protection along the trip. Here is how some well-known riders operate:
Term conversion rider: This enables you to switch from a term policy that is currently in place to a permanent life insurance policy. This feature is typically provided free of charge with level-term insurance.
A life-limiting disease diagnosis allows you to use the accelerated death benefit rider to obtain a portion of your death benefit sooner. Many term insurance policies include the accelerated death benefit rider at no additional cost.
Guaranteed renewability provision: Enables you to continue your life insurance coverage up to a particular age, regardless of changes in your health. This is also a common feature of level-term insurance. However, your rates will normally rise every year your policy is renewed past the first term.
Waiver of premium: This clause stipulates that life insurance premiums are exempt from payment if the insured person is disabled and unable to work for more than six months. For complete protection, it is typically more cost-effective to look into separate disability coverage.
Child rider: Enables you to extend your insurance to cover your child in various ways. The standard coverage ranges from $5,000 to $20,000.
Conclusion
Level-term life insurance is a fantastic method to guarantee that your loved ones will be financially taken care of in the case of your passing. An insurance policy offers protection for a set amount of time, such as 10, 15, or 20 years. It is cost-effective and may give people who want to ensure their family is cared for while away peace of mind.
With so many alternatives available, it’s crucial to compare policies to locate the one that best suits your needs. Thanks to level term life coverage, you may feel secure knowing that your family will be taken care of in the case of your passing.