What Is Level Premium Term Life Insurance?
- Rikin Shah | Licensed Life & Health Insurance Agent
- Fact-Checked (see our Editorial Guidelines)
- Updated: March 25, 2023
Level premium term life insurance is a type of life insurance policy where the premium remains the same over the policy’s life. This means that the amount you pay for coverage stays the same year-over-year, assuming you don’t make any changes to your policy. It also has a level death benefit for the entire time the policy is in effect, meaning your beneficiaries will get paid the same amount regardless of whether you die in the third year or last year of your policy. This type of policy is often cheaper in the long run and allows you to lock in a rate and coverage amount based on your current health. However, rates for level term life insurance are linked to your health, so if you aim to get healthier over the next few years, you could be paying a level — but inflated — price for all the years of coverage.
What is level premium term life insurance?
Level premium term life insurance is a type of life insurance policy where the premium remains the same over the policy’s life. This means that the amount you pay for coverage stays the same year-over-year, assuming you don’t make any changes to your policy. The death benefit is also guaranteed to remain the same throughout the contract. It can be cheaper in the long run compared to annually renewable term life insurance, which renews each year with rates going up as you get older. However, premiums for level term life insurance are linked to your health, so it’s important to lock in a rate based on your current health. Decreasing term life insurance is another type of coverage where the death benefit decreases over time, usually in line with a need for less coverage.
How does level premium term life insurance work?
Level premium term life insurance is a type of life insurance where the premium remains the same over the policy’s life. This means that the amount you pay for coverage stays the same year-over-year, assuming you don’t make any changes to your policy. The death benefit is also guaranteed to remain the same throughout the contract. Most of the “normal” term policies available today are some flavor of level term life, but it’s worth clarifying which product you want when talking to a life insurance agent or when shopping online. It’s predictable, helps with budgeting, and can be cheaper in the long run. However, premiums are linked to your health, so rates for level term life insurance are locked in based on your current health, and not everyone is as healthy as they can be — or plan to be. If you lock in a rate with your current medical history but you aim to get healthier over the next few years, you could be paying a level — but inflated — price for all the years of coverage.
What are the benefits of level premium term life insurance?
Level premium term life insurance offers a predictable death benefit for the entire policy term, with premiums that remain the same year-over-year. This makes it easy to budget and can be cheaper in the long run compared to annual renewable term life insurance. However, premiums are linked to your current health, so if you plan to get healthier in the future, an annually renewable policy may be a better option. Decreasing term life insurance is also available, which offers a decreasing death benefit over time and is often less expensive. Laddering term policies can also be a way to reduce coverage as your needs decrease.
How long does level premium term life insurance last?
Level premium term life insurance lasts for a fixed period of time, typically 10, 20, or 30 years. The premium and death benefit remain the same throughout the policy’s life.
Is level premium term life insurance more expensive than other types of life insurance?
Level premium term life insurance policies typically have higher premiums than annually renewable term life insurance policies with terms of only one year at a time. However, over the long run, level-premium payments are often more cost-effective. This is because the higher premiums have typically been offset by an increase in coverage during a period when a policyholder typically has more medical issues. The amount of level premium paid on a policy will depend on one’s age and health: the younger and healthier one is, the lower the level premium will be.
Can I change my coverage amount with level premium term life insurance?
No, with level premium term life insurance, the coverage amount remains the same for the entire duration of the policy. If you need to increase your coverage, you would need to apply for a new policy and potentially undergo a new medical exam. However, you can decrease your coverage by filling out a form with your insurer. Alternatively, you could consider “laddering” your term policies to gradually decrease your coverage as your needs change.
What happens if I outlive my level premium term life insurance policy?
If you outlive your level premium term life insurance policy, there is no payout. The policy only pays a death benefit if the policyholder passes away during the fixed period of the policy. However, you can always renew or purchase a new policy if you still need coverage. It’s important to review your life insurance needs regularly and make adjustments as necessary.
Can I renew my level premium term life insurance policy?
Yes, you can renew your level premium term life insurance policy. However, the premiums may increase as you age and your health changes. It’s important to review your policy regularly and consider your current needs and budget. You may also want to explore other options, such as converting to a permanent life insurance policy. As your life changes, your insurance needs may change as well, so it’s important to stay informed and make adjustments as necessary.
Are there any restrictions on who can purchase level premium term life insurance?
Yes, eligibility for level premium term life insurance will depend on factors such as age, health, and lifestyle habits. The younger and healthier you are, the more likely you are to qualify for lower premiums. However, each insurance company has its own underwriting guidelines, so it’s best to speak with an agent to determine your eligibility.
Is level premium term life insurance a good option for me?
Level premium term life insurance can be a good option for those who want predictable premiums and a fixed death benefit for the entire policy term. However, it’s important to consider your current health and whether you plan to make any lifestyle changes that could affect your premiums. Additionally, you may want to consider laddering term policies to reduce coverage as your needs decrease over time. I can help you explore your options and find the best policy for your specific needs.