What is Level Premium Term Life Insurance?
Level premium term life insurance is term life insurance coverage with a premium and death benefit that’s fixed for the duration of the policy term, which usually lasts 10 to 30 years. It’s the most common type of term life insurance.
How term life insurance works
When you buy term life insurance, you get life insurance coverage with the policy details fixed for the duration of the term. If you buy a 20-year term life insurance policy, for example, the specifications of the policy stay in place for 20 years.
If you pass away within the policy term, your beneficiaries (the people you’ve chosen) get the death benefit from your policy. They can use that money however they want, from paying for your funeral to covering mortgage payments.
If you outlive the policy term, you have options, including canceling the policy, converting it to permanent life insurance, or keeping it in place as a term policy.
Still, because term life insurance is significantly more affordable than permanent life insurance (coverage that lasts your lifetime), it’s a budget-friendly fit for a lot of people’s insurance needs. And you can buy term insurance that aligns with your finances and goals. If you just took out a 30-year mortgage, you might get a 30-year term policy, for example. Or if you just had a baby, you might buy a 20-year term policy to cover the years they’ll be living at home.
If you choose term life insurance, you’ll need to make some choices. Beyond determining the right policy term and the right amount of death benefit for your needs, you also have options as far as how you’ll pay for the policy. Specifically, you can choose between level-premium insurance or policies with increasing premiums, like yearly renewable term (YRT) policies.
Term life insurance premiums
The majority of term life policies are level premium policies. Level-premium insurance means that you’ll pay the same amount to the insurer throughout the policy’s term. If you’re paying your premiums on a monthly basis, for example, that monthly amount will be fixed from the first month your policy is in force all the way until the end of your term. That can make budgeting for your policy easy through the years.
Level-premium insurance is also appealing because insurers determine your premiums based on your age and health now. The younger and healthier you are, the less you’ll pay. By purchasing level premium term life insurance now, you lock in the fixed premiums before you get older and, consequently, more expensive to insure.
Level-premium insurance contrasts with increasing term life insurance policies, like a yearly renewable term (YRT) policy. In that case, the policy renews annually. That means that each year, the insurer can reevaluate your premiums. And because you’ll be older, they will almost certainly increase.
That said, YRT policies usually start cheaper than level-premium term policies. If you think you’ll only need coverage for a short amount of time (like a few years), increasing term life insurance may be the most affordable path. But if you plan to keep the policy in place for a decade or more, level-premium insurance usually means paying less over time.