Level term life insurance is the most common and basic form of term life. When you’re looking for temporary life insurance plans, level term life insurance is one route that you can go.
Most of the time, level term life insurance is the most straightforward and cost-effective life insurance option because it has the simplest structure. You’ll keep the same premium for the duration of your policy, whether it be 5, 10, 20 or 30 years. With level term, the death benefit remains "level" or unchanged throughout the life of the policy.
Level term life insurance operates very similarly to other life insurance policies. Here’s a rundown of how it all works:
The application process for level term life insurance is typically very straightforward. You’ll fill out an application that contains general personal information such as your name, age, etc. as well as a more detailed questionnaire about your medical history. Depending on the policy you’re interested in, you may have to participate in a medical examination process. However, many companies offer policies with no medical exam required. Once your application is processed and accepted, you’ll sign and begin paying your premiums.
Because maintaining a level term life insurance policy is simple, it requires little to no maintenance on your part. All you need to do is maintain your premiums for the life of your policy, and you’re all set. You may find it worth your time, however, to periodically assess your level of coverage to determine if it is appropriate for your current situation.
At the end of your term, your policy will expire, leaving you with a handful of decisions to make. You may have the option to convert it to a whole life policy, which can last for the duration of your life, but it’s significantly more expensive than your previous level term life insurance policy. You could also begin a new level term life insurance policy, you’ll just have to go through the application process again.
The short answer is no. A level term life insurance policy doesn’t build cash value. If you’re looking to have a policy that you’re able to withdraw or borrow from, you may explore permanent life insurance. Whole life insurance policies, for example, let you have the comfort of death benefits and can accrue cash value over time, meaning you’ll have more control over your benefits while you’re alive.
Decreasing term life insurance and level term life insurance are effectively the same, with one key difference. While level term life insurance allows you to receive the same death benefit on the first day as the last of your policy, the payout for decreasing term life insurance continually falls as the policy gets older.
While level term life insurance provides a steady premium and death benefit for the entirety of the plan, it doesn’t offer many financial benefits while you’re alive. It also has a set expiration date, requiring you to apply again to extend your policy. This can include new medical examinations, underwritings and more.
If you’re seeking a policy that can benefit you while you’re alive, you might look into a whole life insurance plan. With a whole life insurance policy, you will still have level premiums, but you’re often able to borrow against your cash value to cover immediate costs or allow it to accrue at a fixed interest rate over time while retaining your death benefit coverage for the rest of your life. It's important to note that unpaid loans will reduce the death benefit by the outstanding balance and interest.
The biggest differences between level term life insurance and whole life insurance are how long you’ll be able to retain your coverage, whether or not you can borrow against your plan, and the cost of your premiums.
It’s important to have a level term life insurance policy that’s tailored to your exact needs so that you can have the comfort of knowing that your affairs will be properly taken care of even after you’ve passed away. With level term life insurance policies, you may be able to customize by adding riders to your plan. Riders are optional provisions added to your policy that can give you additional benefits and protections.
Riders are a great way to add safeguards to your policy. Anything can happen over the course of your life insurance term, and you want to be ready for anything. By paying just a bit more a month, riders can provide the support you need in case of an emergency. Some of the most common policy riders are:
If you become totally disabled, this rider allows you to stop paying premiums and continue your policy until you’re able to return to work.
This rider provides term life insurance on your children through the ages of 18-25. There are instances where these benefits are built into your policy, but they can also be available as a separate addition that requires additional payment.
This rider provides an additional death benefit to your beneficiary should you die as the result of an accident. This cost-effective option may be worth considering if you work in a potentially hazardous occupation, or you’re simply concerned about accidental death.
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