Level Term Life Insurance

Summary

A level term insurance policy is written for a specific number of years, usually 5, 10, 20, or 30 with the premium remaining the same every year . When the term is up, most policies allow you to elect to continue coverage for a certain period of time with no medical underwriting necessary. You will, however, have to pay the premium appropriate for your age which may eventually become prohibitive as you age. Level term policies do not accumulate cash value.

Variations

Level term is the most popular type of life insurance today and with the wide range of options available, it is the best choice in many situations. However, not all "level term" policies are the same. Some companies offer a "non-guaranteed" policy which gives the company the option to increase the premium after some period. There are also differences in renewal and conversion guarantees which can be very important. You should check the terms and conditions of any proposal very carefully to be sure you understand what is actually guaranteed.

Advantages

There is no universal advantage or disadvantage to level term as compared to permanent insurance. Each type has its appropriate use. Permanent insurance has investment and tax advantages that can be very attractive to higher income individuals. Level term is better for many middle income individuals who want to obtain the maximum amount of protection for their premium dollar. But there are many other considerations besides income level and the best policy for you depends on your individual circumstances.

Examples

Consider a middle income family with two young children. Their primary concern might be replacement of critical income during their prime earning years and a 20 year level term policy could well be the best choice. On the other hand, consider an upper middle income family whose $150,000 stock portfolio from seven years ago is now worth $1.5 Million. They now have estate planning issues that may be best addressed by permanent insurance. Level term can be a good choice for business purposes--funding a buy-sell agreement between partners or protecting a company from the loss of a key executive. Permanent insurance is usually better for charitable giving and may be the best choice for individuals looking for a conservative investment with guaranteed returns.

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