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Understanding level term life insurance

Level term life insurance usually comes with a payout and premium payments that remain the same for the duration of the policy’s term. It’s the simplest and most affordable life insurance option for most people.

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By

Katherine MurbachEditor & Licensed Life Insurance AgentKatherine Murbach is a life insurance and annuities editor, licensed life insurance agent, and former sales associate at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.&Tory CrowleyAssociate Editor & Licensed Life Insurance AgentTory Crowley is an associate life insurance and annuities editor and a licensed insurance agent at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.

Edited by

Antonio Ruiz-CamachoAntonio Ruiz-CamachoAssociate Content DirectorAntonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.
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Reviewed by

Maria FilindrasMaria FilindrasFinancial AdvisorMaria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

Updated|2 min read

Expert reviewedExpert reviewedThis article has been reviewed by a member of ourFinancial Review Council to ensure all sources, statistics, and claims meet the highest standard for accurate and unbiased advice.Learn more about oureditorial review process.

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Level term life insurance is a policy that lasts a set term — usually between 10 and 30 years — and comes with a level death benefit and level premiums that stay the same for the entire time the policy is in effect. This means you’ll know exactly how much your payments are and when you’ll have to make them, allowing you to budget accordingly. You’ll also know how much money your loved ones will receive when you die, giving you peace of mind and helping you plan for the future.

Level term can be a great option if you’re looking to buy life insurance coverage for the first time. According to LIMRA’s 2023 Insurance Barometer Study, 30% of all adults in the U.S. need life insurance and don’t have any type of policy yet. [1]

Level term life is predictable and affordable, which makes it one of the most popular types of life insurance. 

How does level term life insurance work?

The main difference between level term and other types of term options is that its premiums and death benefit stay the same for the duration of the policy.

Other than that, level term life insurance works like other term life insurance policies.

  1. You choose how much coverage you need and for how long.

  2. Once your policy is active, you make premium payments that never change.

  3. If you die while your coverage is in place, a tax-free cash benefit is paid out to your named beneficiaries. The payout amount is guaranteed, which means your beneficiaries receive the money regardless of when you pass away — as long as the policy is active.

  4. If you outlive the policy, it expires and you stop making premium payments.

How much does level term life insurance cost?

The cost of level term life insurance largely depends on your age, gender, overall health profile, and lifestyle habits. In general, the younger and healthier you are, the lower your rates will be.

A 30-year-old female in good health who doesn’t smoke can expect to pay $23 per month for a 20-year level term life insurance policy with a $500,000 payout. A 30-year-old male with a similar profile can expect to pay $29 per month for the same coverage.

Average 20-year level term life insurance rates

Age

Gender

$250,000 coverage amount

$500,000 coverage amount

$1 million coverage amount

20

Female

$15.01

$22.65

$33.63

Male

$19.18

$30.20

$47.51

30

Female

$15.17

$22.98

$36.90

Male

$18.19

$29.32

$48.89

40

Female

$21.66

$35.27

$60.65

Male

$25.39

$42.94

$75.24

50

Female

$43.92

$78.29

$139.50

Male

$56.69

$102.50

$188.29

60

Female

$107.83

$194.16

$354.51

Male

$149.38

$268.04

$499.98

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Methodology: Average monthly rates are calculated for male and female non-smokers in a Preferred health classification obtaining a 20-year $250,000, $500,000, or $1,000,000 term life insurance policy. Life insurance averages are based on a composite of policies offered by Policygenius from Brighthouse Financial, Corebridge Financial, Foresters Financial, Legal & General America, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica, and the Policygenius Life Insurance Price Index, which uses real-time data from leading life insurance companies to determine pricing trends. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 06/01/2024.

Learn more about life insurance rates

What are the pros & cons of level term life insurance?

Pros

  • It’s the cheapest form of life insurance for most people. Level term life is much more affordable than a comparable whole life insurance policy.

  • It’s easy to manage. Level term insurance is low-maintenance — you just have to continue making premium payments on time.

  • It allows you to budget and plan for the future. You can easily factor your life insurance into your budget because the premiums never change. You can plan for the future just as easily because you know exactly how much money your loved ones will receive in the event of your absence.

Cons

  • It expires. If you reach the end of your policy and realize you still need coverage, you may need to get a new policy at a higher cost. Life insurance gets more expensive to buy as you age due to increased insurance risk, so your replacement policy will be more expensive. 

  • Your rate is locked in. If your health improves while your policy is active, you could end up paying more than you need. This is true for people who quit smoking or who have a health condition that resolves. In these cases, you’ll usually have to go through a new application process to get a better rate.

What happens at the end of a level term life insurance policy?

If you still need coverage by the time your level term life policy nears the expiration date, you have a few options.

  • Renew your existing term policy. Most level term life insurance policies come with the option to renew coverage on an annual basis after the initial term ends. The cost of your policy will be based on your current age and it’ll increase every year. This could be a good option if you only need to extend your coverage for one or two years — otherwise, it can get expensive pretty quickly.

  • Convert your policy. Many level term life policies come with a conversion rider that allows you to convert them into permanent life insurance. Consider this option only if you realize you’ll need to extend coverage indefinitely — premiums for permanent life insurance are much higher than they are for term life insurance.

  • Apply for a new level term life policy. This could be the most affordable option available to you to extend your coverage after your initial level term life policy expires. Your premiums will be based on your current age, and you’ll have to go through underwriting again, which is the process insurers use to assess your insurance risk and set your rates. It’s possible that you’ll have to take a new medical exam, too.

Learn more about how life insurance works

Ready to shop for level term life insurance?

What are the differences between level term & whole life insurance?

Whole life insurance is one of the most popular types of permanent life insurance, so you might be trying to decide between whole and level term life. These are the main differences between both.

  • Level term life insurance is one of the cheapest coverage options on the market because it offers basic protection in the form of death benefit and only lasts for a set period of time. At the end of the term, it expires.

  • Whole life insurance, on the other hand, is significantly more expensive than level term life because it doesn’t expire and comes with a cash value feature. This is an investment-like separate account that grows over time and that you can borrow from while you’re still alive.

  • If your main goal is to provide a financial safety net for your loved ones in the event of your death, level term life insurance is your best bet.

  • If you have a high net worth and are looking for ways to complement your investment or estate planning portfolio, or if you have dependents that require lifelong care, whole life can be a better fit for you.

Features

Term life insurance

Whole life insurance

Permanent coverage

No — maximum of 40 years

Yes

Cost* ($500,000 coverage amount)

$26/month for a 20-year term

$451/month

Guaranteed death benefit payout

Yes

Yes

Guaranteed cash value

No

Yes

Premium cost stays fixed

Yes, in most cases

Yes, in most cases

Pays annual dividends

No

Yes, in some cases

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*Methodology: Average monthly term life insurance rate is for male and female non-smokers with a Preferred health classification obtaining a 20-year, $500,000 policy. Term life insurance averages are based on a composite of policies offered by Policygenius from Brighthouse Financial, Corebridge Financial, Foresters Financial, Legal & General America, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica, and the Policygenius Life Insurance Price Index, which uses real-time data from leading life insurance companies to determine pricing trends. Average monthly whole life insurance rate is calculated for non-smokers in a Preferred health classification, obtaining a whole life insurance policy paid up at age 100 offered by Policygenius from MassMutual. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 06/01/2024.

Learn more about the differences between term and whole life insurance

Alternatives to level term life insurance

Level term is a great life insurance option for most people, but depending on your coverage needs and personal situation, it might not be the best fit for you. These policy alternatives are worth considering.

  • Annual renewable term life insurance has a term of only one year and can be renewed annually. Annual renewable term life premiums are initially lower than level term life premiums, but prices go up each time you renew. This can be a good option if you, for example, have just quit smoking and need to wait two or three years to apply for a level term policy and be eligible for a lower rate. 

  • Decreasing term life insurance is a type of term life insurance that can be used to pay off debt, like a mortgage. With a decreasing term life policy, your death benefit payout will decrease over time, but your payments will stay the same. Decreasing term life policies like mortgage protection insurance usually pay out to your lender, so if you’re looking for a policy that will pay out to your loved ones, this is not a good fit for you. 

  • Increasing term life insurance has a payout that increases as time goes on. Increasing term life insurance policies can help you hedge against inflation or plan financially for future children. On the other hand, you’ll pay more upfront for less coverage with an increasing term life policy than with a level term life policy. 

If you’re not sure which type of policy is best for you, working with an independent broker can help. At Policygenius, our experts are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.

How to buy level term life insurance

Once you’ve decided that level term is right for you, the next step is to purchase your policy. Here’s how to do it.

  1. Calculate how much life insurance you need Your coverage amount should provide for your family’s long-term financial needs, including the loss of your income in the event of your death, as well as debts and everyday expenses. A common rule of thumb is to multiply your annual income by 10 to 15 to get an estimate for your total coverage. You can also use our life insurance calculator to determine exactly how much coverage you need.

  2. Compare life insurance companies and quotes You can get a free online life insurance quote with just a few pieces of personal information, such as your location, age, gender, and basic medical history. Every insurance company assesses the different factors that determine the cost of a policy differently, so you’ll want to compare across the best life insurance companies on the market to find the right policy for your specific situation.

  3. Fill out an application Complete a questionnaire about your health history and have a phone call with an agent.

  4. You may have to take a medical exam It’s a standard part of the application process. Medical exams are similar to an annual physical, take around 30 minutes, can be conducted in your own office or home, and are covered by the insurer. Depending on your profile, you may even be able to skip this part of the process and be eligible for a no-exam life insurance policy. The agent working on your application will tell you if this is an option for you.

  5. Wait for approval The insurance company will review your application and give you your final rate.

  6. Review and buy your policy Once you sign the policy paperwork and pay your first premium, your policy will go into effect and you’ll be covered.

Applying for coverage through Policygenius is the easiest way to buy life insurance. All you have to do to get started is connect with an agent. At Policygenius, our agents are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.

References

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Policygenius uses external sources, including government data, industry studies, and reputable news organizations to supplement proprietary marketplace data and internal expertise. Learn more about how we use and vet external sources as part of oureditorial standards.

  1. LIMRA

    . "

    2023 Insurance Barometer Study

    ." Accessed April 01, 2024.

Authors

Katherine Murbach is a life insurance and annuities editor, licensed life insurance agent, and former sales associate at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.

Tory Crowley is an associate life insurance and annuities editor and a licensed insurance agent at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.

Editor

Antonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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