Popular Types of Life Insurance

Types of Life Insurance

Term Life Insurance

Whole Life Insurance

No medical exam life insurance

Level term life insurance

Level term, the most common type of term life insurance, offers a set premium and death benefit. It’s the simplest and most affordable option for most people.

Most people shopping for life insurance need term life insurance. This type of life insurance lasts a predetermined number of years (the “term”) and is affordable and straightforward: you pay premiums for coverage and the insurer pays a death benefit to your loved ones if you die during the term. If you outlive the term, the policy expires and you stop paying.

But, there are different types of term insurance. Most term policies you encounter are level term life insurance, which guarantees that you pay the same price for your policy no matter how long it’s active and your death benefit doesn’t change. 

If you want to ensure that your loved ones are financially secure when you die, level term life insurance is the best option. It’s also one of the most common life insurance policies, so it’s easy to compare quotes and get the best prices.

Key Takeaways

  • A level term policy’s premiums and death benefit stay the same as long as the policy is active

  • Level term policies typically last 10-30 years, then expire

  • Your beneficiaries receive a tax-free lump sum if you die during your policy term

  • The phrase “term life insurance” is usually used to reference level term insurance

What is level term life insurance?

Level term life insurance is a term life insurance policy with a set premium and death benefit. Coverage typically lasts for 10 to 30 years. When insurance agents mention term life insurance, they usually mean level term insurance.

Level term life insurance works much like other life insurance policies:

  1. Choose a coverage amount and term length. These, as well as your health and age, affect the cost of your term life insurance policy.

  2. Pay premiums monthly or annually.

  3. If you die while your coverage is in place, a tax-free cash benefit is paid out to your named beneficiaries.

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

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How much does level term life insurance cost?

Level term life insurance is the most affordable type of life insurance for most people. Your premiums are decided based on your age, health, medical history, and other risk factors, like your hobbies and driving record.

Level term life insurance rates

Below are the average monthly rates for a 20-year level term policy at different death benefit amounts and ages. Women generally pay less for coverage than men, but individual health backgrounds and other criteria also impact the final price.

AgeGender$250,000$500,000$750,000.00$1,000,000
25Female$14.23$21.23$28.25$34.52
Male$17.12$27.08$37.04$45.14
35Female$16.47$25.41$33.53$42.63
Male$18.68$30.27$40.42$51.73
45Female$28.39$47.49$66.94$86.31
Male$35.28$60.76$85.81$113.60
55Female$60.23$107.94$155.48$206.06
Male$83.64$151.23$222.86$286.53

Methodology: Sample premiums are for male and female non-smokers with a Preferred health rating based in Columbus, Ohio and buying a 20-year term life insurance policy; Life insurance averages are based on a composite of policies offered by Policygenius from AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Principal, Protective, Prudential, SBLI, and Transamerica and may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 6/08/2021.

Note that even for affordable level term policies, the cost of life insurance increases with age, rising an average of 4.5-9% per year. If you need life insurance, buying sooner, when you’re younger (and likely healthier) can lock in lower rates for decades.

What happens to level term life insurance at the end of the term?

When you reach the end of your policy’s term, your coverage expires. From there, you have a few choices:

  • Go without life insurance. You should only do this if you’re able to self-insure and genuinely have no dependents or outstanding debts.

  • Purchase a new level term policy. You’ll have to undergo the medical exam again, so while your premiums will be level, they will be more expensive than those of the expired policy.

  • Convert your term policy into a permanent life insurance policy. This is a common feature of term policies. A permanent policy will last your entire life but is much more expensive than a term policy.

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Pros and cons of level term life insurance

Though level term life insurance is right for most people, there are exceptions. It’s not the best fit for someone who needs lifelong coverage or a policy with a cash value savings feature. Here are the pros and cons:

Pros of level term life insurance

  • Cheapest form of life insurance for most people

  • Easy to manage, with few extra fees or additional components

  • Lasts only as long as you need coverage

  • Unchanging premiums or death benefits

Cons of level term life insurance

  • Expires, so you may need to buy a new, more expensive policy later

  • No cash value to grow tax-deferred savings

  • Premiums aren’t refunded if you outlive the policy

Level term vs. whole life insurance

Whole life insurance is the most common form of permanent life insurance. The main difference between term and whole life policies are:

  • Whole life policies never expire as long as you pay premiums

  • Policies come with a cash value component that earns interest

Whole life insurance also offers a level premium and death benefit. If you accumulate enough cash value, you can sometimes use your cash value to buy additional coverage. However, whole life costs five to 15 times more than level term insurance, and most people don’t need the permanent coverage or extra features.

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Other types of term life insurance

Most alternatives to level term life insurance won’t provide more cost-effective or complete coverage, and are best used in specific circumstances. The one exception is accelerated underwriting life insurance, which allows low-risk applicants to buy level term coverage without a medical exam. 

Here’s how the other types of term life insurance stack up against a level term policy: 

  • Accelerated underwriting: This allows insurers to approve level term insurance coverage using existing medical records instead of a medical exam. Best for young and healthy individuals.

  • Annual renewable term life: Has a term of only one year and can be renewed annually. Premiums are initially lower than level term premiums, but prices go up each time you renew. Best for those who only need coverage for a short period.

  • Decreasing term insurance: Premiums stay level, but the death benefit decreases over time. Policies are usually tied to a large loan—the benefit decreases as you pay off what you owe. Decreasing term insurance doesn’t offer adequate coverage for your family.

  • Group term insurance: Your employer may offer subsidized life insurance coverage as part of your benefits package. You should sign up, but you’ll rarely get enough coverage from a group policy and you can’t keep it if you leave your company.

  • Return of premium insurance: A level term policy that comes with a refund of any premiums paid into the policy if you outlive the term. However, premiums are two to three times higher than those of a level term policy.

Level term life insurance is the simplest and most affordable type of life insurance for most people, and the most common type of term policy. A licensed insurance agent or broker can help you find the best insurer for your health, age, and coverage needs.

Level term life insurance FAQ

How does level term life insurance work?

You pay a premium for coverage that lasts for 10-30 years. If you die during that period, the insurer pays a tax-free death benefit to your beneficiaries. The premium and death benefit never change. If you outlive the policy, it expires and you stop paying premiums.

What is the difference between term life and level term life insurance?

Term life insurance is often used to refer to level term insurance. Other variations on term life insurance exist, but level term is its most common form.

Does level term life insurance have a cash value?

Level term life insurance does not have a cash value. When your level term policy expires, you may have the option to convert it into a permanent life policy that does include a cash value.