Level term life insurance is a term life insurance policy that has a level death benefit and level premiums for the entire time the policy is in effect. This means that your premium payments won’t change and your beneficiaries will receive a guaranteed payout regardless of when you die, as long as the policy is active. When people talk about “traditional” or “normal” term life insurance, they usually refer to level term life 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 like other term life insurance policies.
Pros and cons of level term life insurance
It’s the cheapest form of life insurance for most people. Level term life is many times more affordable than a comparable whole life insurance policy.
It’s easy to manage. Level term insurance is low maintenance and doesn’t require much upkeep — 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, and 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.
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.
It comes with level premiums. Paying the same for the entire duration of your policy can be great if you buy it while young and in generally good health, locking in a cheap rate. But since the cost of life insurance is closely linked to your health profile and lifestyle habits, you may be paying higher premiums for the entire duration of your policy if you, for example, still smoke but are planning to quit, or if you were recently diagnosed with a health condition that can be managed with treatment.
How much does level term life insurance cost?
A 30-year-old who doesn’t smoke and is generally in good health can expect to pay less than $26 per month for a level term life insurance policy with a duration of 20 years and a death benefit of $500,000.
Average level term life insurance rates
$250,000 coverage amount
$500,000 coverage amount
$1 million coverage amount
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% to 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 50-year-old to apply for a 30 year term that would cover them until age 80, than it would be for a 30-year-old to get the same coverage until age 60.
If you need life insurance, buying sooner, when you’re younger (and likely healthier) can lock in lower rates for decades.
How to buy level term life insurance
Fill out an application, complete a questionnaire about your health history and have a phone call with an agent.
Wait for the insurance company to review your application and give you your final rate.
Once you sign the policy paperwork and pay your first premium, your policy will go into effect and you’ll be covered.
Alternatives to level term life insurance policy
Level term is the cheapest, most convenient 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.
Whole life insurance is a type of permanent life insurance that doesn’t expire — meaning that no matter when you die, your loved ones will receive a guaranteed lump sum of money (the death benefit). Unlike term life policies, whole life includes a cash value savings component you can access while you’re still alive. The cash value earns interest at a fixed rate set by the insurer. Similar to level term life, traditional whole life insurance policies also come with level premiums, so you know from the start how much you’ll pay for the entire duration of the policy. While whole life is significantly more expensive than term life, it can be a good option for high-net-worth individuals with complex coverage or estate planning needs, or people who have dependents who require lifelong care.
Group term life insurance coverage may be offered through your employer for free or at a subsidized rate as part of your benefits package. You should sign up for group term insurance if it’s offered by your employer, but you’ll rarely get enough coverage from a group policy — and you can’t keep it if you leave your company. But this can be a good option if you only need a low coverage amount or you currently can’t fit your own private term life insurance policy into your budget.
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.
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 now and lock in cheap premiums.
With a level term life 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.