What is level term life insurance? - Enterprise Podcast Network - EPN

One of the most demanded types of life insurance is level term insurance. They’re meant to provide protection in the event of your death within a certain established period.  When approving a level term life insurance, you’ll set a term at the beginning, that usually goes around 25 years, as well as payout size. The payout stays the same regardless if you die at the beginning or the end of the policy.

Why do people choose life insurance policies? The reason stays the same.  People take out life insurance policies to make sure that their remaining family will not have to face mortgage repayments in the event of their death. One of the main pros of level term life insurance is that you can buy pure life coverage without facing additional charges for possible unnecessary features such as savings and investment.

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How does it work?

At its most basic, life insurance is meant to pay out a sum of money after you die.

This is what will ensure that your dependants, such as your spouse, children and other relatives, will be able to keep up with the bill payments, maintain a normal standard of living and even pay for the funeral cost after you’ve gone.

One of the most common types of cover for this is the type of policy that can pay out if you die within a set period of time.

This policy is also known as a term life insurance where if it happens to die after the pre-agreed time-frame, you will not obtain the payout. But for a situation where someone needs life-insurance for a definite span of time, the level term life insurance coverage is ideal. In many cases, the main purpose of this coverage is to protect those you love against the risk of losing the income stream of a household provider in the event of your death. For instance, when the policy pays out, your family could use that amount to:

  • Pay off an existing mortgage
  • Pay for your funeral
  • Keep up with household bills
  • Maintain a good standard of living for your family

Level term policies aren’t too difficult to comprehend. All you have to do is to set the length of the policy term, and the amount of cover your family needs to receive. So, if you were to die at any point during that period, the payout will stay the same.

How is it different from whole life insurance?

Unlike the whole life, which is meant to cover you until your death, the level term life insurance provides coverage only for a set period of time, such as 13, 20, or 25 years. When applying for a term premium will increase in time, but that’s unless you choose to buy a “level term” policy that will ensure your premiums will remain the same. In case of the level term insurance, there is no cash value component, which means your policy will expire only when you reach the end of the term.

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This means there is a chance for you to outlive your policy, yet your loved ones won’t receive the benefit when you die. But if you still wish to have coverage at the end of the term policy, you would have to look at another type of policy. In this case, some insurance companies allow you to change your level term life-insurance quote into a whole policy.

Compared to whole insurance, with a term insurance policy, you can get a considerably higher coverage amount for a much lower premium because there is a high chance for you to outlive the term and obtain nothing for the premium you’ve paid.

Why do people choose level term life policies?

People often choose level term policies because they are not only predictable but also very affordable. They know exactly how much coverage they have, how long it will last, and how much it costs. For many families, permanent life insurance might not be necessary as the family matures, the children grow up and become self-sufficient while parents retire. When the retirement comes, the family income drops to zero, and the family relies on the retirement savings to look after them, which means they are no longer at risk of losing substantial income.

Affordability 

Other types of life insurance include a mortality charge that only pays for pure overage- the death benefit. This benefit is paid for fixed mortality charges no matter if you choose to buy a term, whole, universal or variable policy. Those seeking a maximum death benefit with the least investment are in a more advantageous position with a level term policy because the permanent policies include charges and other additional features, all of which not everyone is prepared for.

Even though today’s financial advisors use to steer people towards whole life insurance, the latest trends have been more towards term life. In this case, you can still opt for a pure death benefit coverage by buying a term policy while investing funds on the side in a different savings account than paying the fees of the whole insurance policy. Popular beliefs have pushed the term “buy-level-term insurance and invest the difference” mentality that people can obtain a higher rate of the stock returns than in permanent life insurance. And this is definitely a feasible solution for many people.

There is no one size fits all when it comes to a life insurance policy, but people often tend to overlook this aspect. Why? For many people, a level term policy is precisely what they need. But for others, the tax benefits, the time frame, or the investment value of the form of a permanent life policy makes it a better solution.

If you’ve decided to apply for level term insurance, make sure you contact an insurance agent or a company with whom you’re comfortable with and that you count on to give you proper guidance.

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