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, which expires after a predetermined number of years (the “term”) is affordable and straightforward: You pay premiums, and if you die during the term the insurer pays a death benefit to your beneficiaries. If you outlive the term, the policy expires and you stop paying.

Term life is the simplest form of life insurance, but there are different versions of it. Most people buying term life insurance are actually buying level term life insurance, an important distinction that guarantees you pay the same price for your policy no matter how long it’s active. If you’re looking for a basic financial safety net to ensure that your loved ones are secure in the event of your death, level term life insurance is the best option. It’s also one of the most common policies offered by life insurance companies, 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, 20, or 30 years, after which the policy expires

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

  • Level term is enough coverage for most people, and the cheapest and simplest option for most as well

How does level term life insurance work?

Level term life insurance, like all term policies, lasts for a set period of time — typically 10 to 30 years — before it expires. The word “level” is key to the definition: The premium for the policy stays the same, or level, for the entire life of the policy. The death benefit also stays the same. When people mention term life insurance generically, they usually mean level term insurance.

Level term life insurance follows the same basic process as other life insurance policies:

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How much does level term life insurance cost?

Level term life insurance is the most affordable 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 costs for a 20-year level term policy at different death benefit amounts and ages. Note that women generally pay lower life insurance premiums than men but individual health backgrounds and other criteria will impact the final price.

Age $250,000$500,000$750,000.00$1M
25Female$14.24$21.26$28.20$34.50
Male$17.15$27.10$37.03$45.21
35Female$16.53$25.53$33.62$42.67
Male$18.79$30.41$41.62$51.85
45Female$28.43$47.62$66.36$86.53
Male$35.39$60.92$86.21$113.64
55Female$60.29$108.05$153.56$206.88
Male$84.14$151.80$222.59$287.51

Methodology: Average premiums based on sample policies from the 11 carriers that offer policies through Policygenius in 2020, including AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Principal, Protective, Prudential, SBLI, and Transamerica, for a Preferred health class.

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 to buy life insurance, buying sooner, when you’re younger and likely healthier, is best.

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

When you reach the end of your policy’s term, the policy 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. Note that 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 to a permanent life insurance policy. This is a common feature of term policies. A permanent policy will last your entire life, but is often more expensive than a term policy.

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What is the difference between a level term and whole life insurance policy?

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

  • Term life policies expire, while whole life policies last as long as you pay premiums.
  • Whole life policies (and other types of permanent life insurance) have an investment-like cash value component that can grow over time.

Unlike level term life insurance, permanent life insurance won’t necessarily have a level premium. For example, with whole life insurance you can use the cash value to pay premiums so the amount you pay out of pocket is less; with universal life insurance, premiums can go up or down depending on the interest earned on the policy’s cash value.

Level term insurance is better than whole life insurance for most people because it’s easier to manage and more affordable.

Advantages and disadvantages of level term life insurance

Though level term life insurance is right for most people, there are still some pros and cons to consider:

Advantages of level term life insurance

  • Predictable financial protection, with unchanging premiums or death benefits
  • Easy to understand, with few extra fees or additional components
  • Cheapest form of life insurance for most people.

Disadvantages of level term life insurance

  • Expires, so you may need to buy a new, more expensive policy afterward
  • Premiums aren’t refunded if you outlive the policy
  • No cash value component

Other types of term life insurance

Annual renewable or decreasing term life insurance are the main alternative term life policies available. Each comes with its own stipulations that makes it less cost-effective than a level term life policy.

Annual renewable life insurance

This type of term life policy has a term of only one year. After that year is up, it’s renewable once per year for a certain number of years (outlined in the policy). It’s initially cheaper than a comparable level term policy, but gets more expensive each time it’s renewed. Annual renewable can be a good option if you only need coverage for a very short period, but over the life of the policy, you’ll end up paying higher premiums for the same amount of coverage.

Here’s how level term and annual renewable life insurance compare:

LEVEL TERM OVERVIEWANNUAL RENEWABLE OVERVIEW
Duration1-30 years1 year, renewable for set number of years
Guaranteed Death BenefitYesYes
Guaranteed Cash ValueNoNo
How Cash Grows (or Shrinks)--
PremiumsGuaranteed to remain levelIncreases each year policy is renewed
NotesBest option if you'll need coverage for a number of yearsCheaper initially, but more expensive later. Best for short coverage period

Decreasing term life insurance

A decreasing term policy lasts for a set number of years and has a level premium, but the death benefit decreases over time, which essentially means that you’re paying the same price for less coverage. A decreasing term policy is commonly seen in mortgage protection insurance and other types of credit life insurance, in which the death benefit is pegged to a debt you’re paying down rather than staying level.

Here’s how level term and decreasing term life insurance compare:

LEVEL TERM OVERVIEWDECREASING TERM OVERVIEW
Duration1-30 years1-30 years
Guaranteed Death BenefitYesYes, but death benefit decreases over time, per terms of policy
Guaranteed Cash ValueNoNo
How Cash Grows (or Shrinks)--
PremiumsGuaranteed to remain levelGuaranteed to remain level, even as death benefit decreases
NotesBest option if you'll need coverage for a number of yearsMost often purchased as mortgage insurance through a bank

Level term life insurance is the simplest and most affordable type of life insurance for most people, and the type of term policy you’re most likely to encounter when shopping for a policy. A licensed insurance agent or broker can help you identify the best insurer from which to buy a level term policy based on your health, age, and coverage needs.

Level term life insurance FAQ

What is level term life insurance?

Level term life insurance is synonymous with life insurance. You buy a level term policy for a set period (usually 10-30 years) and pay a premium monthly or annually to keep it active. If you die during that period, the insurer pays a tax-free death benefit to your policy’s beneficiaries. The premium and death benefit never change with level term. 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 the main type of life insurance under which level term, annual renewable, and decreasing term life insurance fall. However, because level term is the most common form of term insurance, “term life insurance” and “level term life insurance” are often used interchangeably to refer to a life insurance policy with a set premium and death benefit that lasts for a defined period and then expires.

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.

Life Insurance Expert

Amanda Shih

Life Insurance Expert

Expertise
Amanda Shih is a life insurance editor at Policygenius in New York City. She has a passion for making complex topics relatable and understandable, and has been writing about insurance since 2017 with specialities in life insurance cost and policy types. She's previously written for Jetty and LegalZoom.

Education
Amanda has a B.A. in literature and communication from New York University.

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