Understanding 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.

Katherine Murbach PolicygeniusTory Crowley, Associate Editor & Licensed Life Insurance Expert at Policygenius

By

Katherine Murbach

Katherine Murbach

Associate Editor & Licensed Life Insurance Expert

Katherine Murbach is an associate editor and a licensed life insurance expert 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

Tory Crowley

Associate Editor & Licensed Life Insurance Expert

Tory Crowley is an associate editor and a licensed insurance expert 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 byAntonio Ruiz-Camacho

Antonio Ruiz-Camacho

Associate Content Director

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.

Updated|6 min read

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Level term is a type of life insurance policy that has the same death benefit and premiums for the entire duration of the policy. Level term life insurance is the most common and popular type of coverage because it’s an affordable and simple way to provide financial protection for your family.

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.

How does level term life insurance work?

What makes level term life insurance unique is that its premium and death benefit never change — they stay the same throughout the entire duration of the policy.

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

  1. You 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. You 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.

To get coverage, you’ll fill out an application and complete a questionnaire about your health history. Depending on your policy, you may or may not take a medical exam as part of the underwriting process, which life insurance companies use to assess risk; some insurance companies offer no-medical-exam policies to applicants who meet certain conditions. 

When you receive your policy offer, you can decide to pay the first premium and sign paperwork to put your policy in force. After that, all you need to do is pay the premiums monthly or annually for the rest of the term and you’ll be covered.

→ Learn more about how life insurance works

Benefits of level term life insurance

For most people, level term life insurance will be the best option for life insurance coverage for several reasons.

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

  • It’s easy to manage, with few extra fees or additional components: Level term insurance is low maintenance and doesn’t require much upkeep — you can just continue to pay premiums.

  • It lasts only as long as you need coverage: Many people find that by retirement, there’s less of a need to pay for more life insurance since their major financial obligations are covered.

  • It comes with unchanging premiums or death benefits: You don’t need to worry about changing your budget to accommodate your coverage.

Drawbacks of level term life insurance

While level term life insurance is best for most people, it may not be right for every scenario. Here are some reasons level term life insurance might not be a good fit for you, depending on your needs.

  • It expires, so you may need to buy a new, more expensive policy later: Life insurance gets more expensive to buy as you age due to increased insurance risk.

  • It comes with no cash value to grow tax-deferred savings: Term life insurance is intended for financial protection as opposed to a wealth-building strategy.

  • Its premiums aren’t refunded if you outlive the policy: Similar to car insurance or health insurance, you don’t get your premiums back if you don’t need to use the benefit.

Should you get a level term life insurance policy?

If you have financial responsibilities like a spouse, children, or mortgage, level term life insurance is likely a good fit for you. 

Alternatively, if you’re young and know that you’re working toward those milestones in the future, it can be a good idea to apply to lock in cheap premiums. 

With a level term policy, you can secure cheap rates for the next 10 to 30 years. This means that regardless if you have any changes to your health, your rates won’t change unless you cancel the policy and apply for a new one. 

How much does level term life insurance cost?

A healthy 35-year-old can expect to pay less than $24 per month for level term life insurance policy with a duration of 20 years and a death benefit payout of $500,000.

Term life insurance rates will vary for each individual, based on variables like your age, health, medical history, and other risk factors, such as your hobbies and driving record.

Level term life insurance is the most affordable type of life insurance for most people, especially those in good health who don’t engage in hazardous activities. However, life insurance companies don’t all evaluate your rates in the same way. The easiest way to determine how much your term life insurance will cost is to speak with a licensed advisor. 

Below are the average monthly rates for 20-year and 30-year level term policies 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.

Average 20-year level term life insurance rates

Age

Sex

$250,000 coverage amount

$500,000 coverage amount

$1,000,000 coverage amount

25

Female

$14.17

$21.06

$33.45

Male

$17.11

$26.89

$44.62

35

Female

$16.39

$25.43

$42.49

Male

$18.58

$30.14

$51.51

45

Female

$28.31

$47.71

$86.45

Male

$35.11

$60.58

$112.52

55

Female

$59.80

$108.44

$207.17

Male

$82.80

$150.39

$282.99

Methodology: Average monthly estimated rates for male and female non-smokers in a Preferred health classification with a 20-year term length. Rates are based on the monthly Policygenius Life Insurance Price Index. Prices in the index are determined by internal actuarial rate tables for life insurance carriers that offer policies through the Policygenius marketplace: AIG, Banner Life, Brighthouse, Lincoln Financial, Foresters Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, SBLI, Symetra, and Transamerica. Illustration valid as of 12/01/2022.

Average 30-year level term life insurance rates

Age

Sex

$250,000 coverage amount

$500,000 coverage amount

$1,000,000 coverage amount

25

Female

$19.36

$30.94

$51.69

Male

$23.81

$39.61

$68.09

35

Female

$23.63

$38.94

$68.74

Male

$27.59

$46.39

$83.44

45

Female

$45.20

$79.79

$148.39

Male

$59.42

$105.09

$197.52

55

Female

$117.36

$211.16

$407.53

Male

$165.08

$305.90

$596.46

Methodology: Average monthly estimated rates for male and female non-smokers in a Preferred health classification with a 30-year term length. Rates are based on the monthly Policygenius Life Insurance Price Index. Prices in the index are determined by internal actuarial rate tables for life insurance carriers that offer policies through the Policygenius marketplace: AIG, Banner Life, Brighthouse, Lincoln Financial, Foresters Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and TransAmerica. Illustration valid as of 12/01/2022.

As you can see in the rate estimates above, even for affordable level term policies, the cost of life insurance increases with age, rising an average of 4.5%-9% per year.

The older you are at the end of your term has an impact, too. This is why, for example, it’s much more expensive for a 55-year-old to apply for a 30 year term that would cover them until age 85, than it would be for a 35-year-old to get the same coverage until age 65.

If you need life insurance, buying sooner, when you’re younger (and likely healthier) can lock in lower rates for decades.

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How to customize your level term life insurance policy

Level term life insurance policies can be customized with riders, or add-ons that provide additional benefits. Not all riders are cost efficient, so it’s helpful to talk with a non-commissioned agent to determine if you might need them. 

  • Term conversion rider: Allows you to convert your existing term policy into a permanent life insurance policy. Many level term policies include this benefit at no additional cost.

  • Accelerated death benefit rider: This feature gives you the option to request a portion of your death benefit early if you’re diagnosed with a life-limiting illness. The accelerated death benefit rider comes with many term policies with no added cost.

  • Guaranteed renewability clause: Allows you to renew your life insurance policy up to a certain age, regardless of health changes. Many level term policies include this as well, but premiums will typically increase every year that your policy is renewed beyond the original term.

  • Waiver of premium: Provides that if the insured is disabled and unable to work for longer than six months, the life insurance premiums are waived. Typically it’s more cost efficient to look into a separate disability policy for full protection.

  • Child rider: Allows you to add an additional portion of your coverage that will protect your child. Coverage amounts typically range between $5,000 and $20,000. 

The best way to customize your level term life insurance is to work with an independent broker who can help you find the right type of policy and add-ons for your unique needs. At Policygenius, our brokers are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.

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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.

Level term vs. decreasing term life insurance

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 policies can be less expensive than level term policies, but on the downside, you’re paying the same amount for less coverage as time goes on. Decreasing term insurance also doesn’t provide enough coverage if you’re also wanting to replace your income for your family.

Level term vs. whole life insurance

Whole life insurance is the most common form of permanent life insurance. Unlike term, whole life policies never expire as long as you pay the premiums, and they 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 it 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. 

If you’re not sure which type of policy is best for you, working with an independent broker can help. At Policygenius, we have non-commissioned advisors who can offer you unbiased advice.

Other types of term life insurance

Most alternatives to level term life insurance aren’t as affordable or provide as much coverage — and they’re usually best suited for specific circumstances. 

The one exception is accelerated underwriting life insurance. This option allows people who are young and in good health to buy level term coverage without having to take the medical exam that’s usually part of the application process. 

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

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

  • Group term insurance: Your employer may offer subsidized life insurance coverage as part of your benefits package. You should sign up for group term insurance if it’s offered to you, 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, return of premium insurance premiums are two to three times higher than those of a level term policy, so they’re typically not worth the extra cost.

While one of these options might be a good fit for you based on your specific circumstances, 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, too.

A licensed insurance agent or broker can help you find the best insurer for your health, age, and coverage needs.

Frequently asked questions

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.

Do you get your money back at the end of a level term life insurance policy?

No, similar to car insurance or health insurance, you don’t get your premiums back if you don’t use the death benefit. There are return-of-premium riders on the market, but they’re not cost efficient.

Is level term life insurance cheap?

Level term life insurance is one of the cheapest life insurance policies on the market. Term life in general is many times cheaper than whole life policies.

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

These two terms can refer to the same product. Level premium means that your rates stay the same, and level benefit means that your death benefit, or your coverage, remains the same throughout the duration of your life insurance policy.

Authors

Associate Editor & Licensed Life Insurance Expert

Katherine Murbach

Associate Editor & Licensed Life Insurance Expert

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Katherine Murbach is an associate editor and a licensed life insurance expert 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.

Associate Editor & Licensed Life Insurance Expert

Tory Crowley

Associate Editor & Licensed Life Insurance Expert

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Tory Crowley is an associate editor and a licensed insurance expert 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

Associate Content Director

Antonio Ruiz-Camacho

Associate Content Director

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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.

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