Level Term Life Insurance

December 13, 2018 12:48 PM

By Scot W Johnson – Whole Vs Term Life

Level Term Life Insurance is the most common and simplest form of life insurance.  The word level is often left off in its description due to the fact that it is the number one form of term insurance.  However not all term insurance is level term insurance and not all life insurance is term insurance.  Understanding its design is really key to getting the most value from your insurance policy.

Definition of Level Term Insurance

Level term life insurance is a form of life insurance whose death benefit remains the exact same (level) each and every year for the life of the term.   In other words the yearly premiums and coverage do not change.   This stands in direct contrast to other forms of life insurance such as Universal Life and Decreasing Term Life.

Term Vs Other types of Life Insurance

Term life insurance is a form of life insurance whose death benefit and premiums are guaranteed for a fixed quantity of years.  This is where the ‘term’ comes in.   After the expiration of the term length the policy either expires or adjusts. This is the opposite of so called permanent life insurance policies such as Whole and Universal Life Insurance whose policies last for your entire life.   These permanent life insurance policies have both death benefits and premiums that last forever.   Term insurance is generally purchased with the idea that the insurance is only needed for a limited period of time while permanent policies are purchased with the desire to have insurance coverage for one’s entire lifespan.

Term costs a small fraction of what permanent insurance does.   This is due to the fact that younger insureds are extremely unlikely to die during the shorter coverage periods of the policy resulting in the majority of term policies not being paid out a death claim.  Term life insurance is in essence a temporary insurance solution.   This temporary insurance solution works extremely well for families that have small children.  If one of the parents were sadly not come home one day the term policy could provide much needed financial support.  Term typically is able to provide a lot of coverage for a low dollar premium.

Whole life insurance policies are completely different providing the insurance on one’s life forever.   But the coverage is not the only thing that lasts forever.  Typically the yearly premiums will be due for the insureds entire lifetime, including their retirement years.  Because the great possibility exists that the life insurance death benefit will be paid out, the costs for these competing policies are high.   Often ten to fifteen times the cost of a competing level term life insurance policy.

Other Types of Term Life

Many people incorrectly assume that all term life policies are level term policies.  This is technically not correct.   The other type of term policy that may be available is called the Decreasing Term Life Insurance policy.   These policies have a declining coverage amount that decreases typically each year over the life of the term.  Strangely enough the premium amount (the yearly bill) is level.  These policies are often best paired up with a mortgage policy that is also declining over the years.   Decreasing term policies are extremely uncommon however and their sales have pretty much dropped off the radar.   The theory of decreasing term insurance is great in concept.  As you age and save you will likely need less life insurance.

Decreasing term life insurance policies are pretty difficult to find as level term life insurance policies are now the standard in the industry.

Remember that a level term life insurance policy guarantees a level death benefit for the life of the insurance policy.

Other Ways of Achieving Decreasing Life Insurance Coverages:

If you are interested in buying term life insurance and want to cut down on your overall coverages over time, there is a new more modern way of achieving this.   Laddering.

Laddering life insurance policies allows clients to bundle up various forms of level term life insurance policies of differing terms together.   An example of laddering life insurance policies would be to purchase a $500,000 20 year and a $250,000 10 year term life policy together.  In the beginning you would have $750,000 in term insurance and around year 11 you will drop the 10 year policy and only have a $500,000 level term policy.

The Benefit of Level Term Life Insurance

Level term life insurance has so many benefits it become difficult to understand them all.  However its simple product structure and easy to understand offerings are by far its appeal to the vast majority of Americans.  When compared side by side with whole life insurance most clients seem confused about any potential value from this other complex form life insurance.  Level term life insurance stands out as the king of life insurance and its place atop the personal financial realm is sure to last a long time.

 Scott W Johnson is the owner of – a comparative life insurance site for consumers.   He enjoys hiking on the weekends with his family in California.