Are you wondering how level term life insurance works?
If you’re thinking about buying life insurance and only need life insurance coverage for a specific number of years then this might be the ideal policy for you.
Level life term insurance is a very straightforward type of life insurance and is the most basic form of life insurance available.
What is Level Life Insurance?
Level life insurance is term life insurance. This type of life insurance pays death benefits only. These policies do not contain a savings component like you would find in permanent insurance such as whole life or universal life for example.
Although level term insurance can cover you for your lifetime you buy it for specific time frames such as 5, 10, 15, 20, 25, 30 years. Each period or time frame is called the ‘term’ which is how term insurance derives its name. You can also buy policies which are age specific such as 55 or 65 years of age for example.
The first thing you have to determine is the amount of coverage or death benefits you feel you would need to achieve your purpose or reasons for buying life insurance. You then select the length of time or term you feel is right for your life insurance needs.
Once you have selected the amount of death benefits, then this is the amount of death benefits your beneficiary(s) would receive should you die during the term you have selected. The death benefits remain level or constant throughout the term of the policy you have purchased. This is why it is called level life insurance because the death benefits remain constant throughout the lifetime of the term.
So, if you buy a $500,000 level term policy for a 20 year term and were to die unexpectedly in the 19th year of the policy, and providing you have kept up with the premiums and not allowed the policy to lapse, then the person(s) you have named as a beneficiary will receive a non-taxable lump sum payment of $500,000 dollars.
On the majority of policies sold by insurers, the premiums are guaranteed for the term you have bought. This means that if your insurer was charging you $20.00 per month for a premium when you bought the policy then that is what you will still be paying in the final year of the term.
However, there are some insurers which do not guarantee the premium and if this is the case, then they have the ability to increase the premium.
To ensure you don’t get caught with having to pay higher premiums, it’s always best to ask your agent if the premiums are guaranteed.
What Happens if the Term Expires?
Most term policies sold are renewable. Before the expiration date on the term occurs, the life insurance company will ask you if you want to renew the policy. You can choose to buy the same length of term or you might opt to buy a shorter term and alter the death benefits.
Always Pick a Suitable Term
There is one thing you should remember if you go to renew your term level policy, and that is the premiums will be quite a bit more expensive. The one important point to keep in mind when buying a level term life insurance policy or any other policy is that life insurance becomes more expensive to buy as you age.….(continued on page 2)