Level Term Insurance Definition

Life insurance can be a confusing topic, with many different types and terms to understand. One type of life insurance that you may come across is level term insurance. In this article, we will define what level term insurance is, how it works, and answer some common questions about this type of life insurance.

What is Level Term Insurance?

Level term insurance is a type of life insurance policy that provides coverage for a specific period of time. This period of time is often referred to as the “term” of the policy. The death benefit, or the amount of money that the policy will pay out if the insured person dies during the term, remains the same throughout the entire term of the policy. This is why it is called “level” term insurance – the amount of coverage remains level or constant throughout the term.

Level term insurance policies are typically purchased with a specific term length in mind, such as 10, 20, or 30 years. The premium, or the amount of money that the policyholder pays to keep the policy in force, remains the same throughout the entire term of the policy. Once the term of the policy has ended, the coverage expires and the policyholder is no longer covered.

How Does Level Term Insurance Work?

Level term insurance policies work by providing coverage for a specific period of time, with a constant death benefit and premium. The policyholder pays the premium to keep the policy in force, and if the insured person dies during the term of the policy, the death benefit is paid out to the policy’s beneficiaries.

For example, if someone purchases a 20-year level term insurance policy with a $500,000 death benefit, they would pay a premium each year for 20 years to keep the policy in force. If the insured person dies during the 20-year term, the policy would pay out $500,000 to the policy’s beneficiaries. If the insured person does not die during the 20-year term, the coverage expires and the policyholder is no longer covered.

Level term insurance policies are often used to provide coverage for a specific period of time, such as during the years when children are growing up or when a mortgage needs to be paid off. They can also be used to supplement other types of life insurance coverage, such as permanent life insurance.

What are the Benefits of Level Term Insurance?

Level term insurance offers several benefits, including:

What are the Drawbacks of Level Term Insurance?

While level term insurance offers several benefits, there are also some drawbacks to consider. These include:

Frequently Asked Questions about Level Term Insurance

What happens if I outlive my level term insurance policy?

If you outlive your level term insurance policy, the coverage expires and you are no longer covered. You may be able to renew the policy for an additional term, but the premium may increase significantly.

Can I convert my level term insurance policy to a permanent life insurance policy?

Some level term insurance policies may offer a conversion option, which allows you to convert the policy to a permanent life insurance policy without a medical exam. However, this option may come with additional costs.

What happens if I miss a premium payment?

If you miss a premium payment for your level term insurance policy, the policy may lapse and you may lose coverage. Some policies may offer a grace period, which allows you to make up the missed payment without losing coverage.

Can I change the amount of coverage on my level term insurance policy?

Some level term insurance policies may allow you to change the amount of coverage during the term of the policy. However, this may come with additional costs and may require underwriting.

Can I buy a level term insurance policy if I have a pre-existing condition?

It may be possible to buy a level term insurance policy if you have a pre-existing condition, but it may come with higher premiums or exclusions for certain conditions.

Conclusion

Level term insurance is a type of life insurance that offers coverage for a specific period of time, with a constant death benefit and premium. While it offers several benefits, including low cost and flexible coverage, there are also some drawbacks to consider, such as no cash value and no coverage after the term ends. By understanding what level term insurance is and how it works, you can make an informed decision about whether this type of life insurance is right for you.