The world of life insurance is changing each and every year. The Typical term life insurance that most people consider buying is actually technically called Level Term Life Insurance. Its superiority and flexibility have made it the go to choice for consumers and financial planners alike. Its cost is typically low and its benefits high. The purchase of Level Term Life Insurance is truly the best financial planning decision that most people are likely to make in their lifetime.
What Is Term Insurance?
Life Insurance can roughly be broken down into two competing types: Cash Value life insurance policies such as Whole, Universal, Variable Life Insurance and Term Life Insurance. These Cash Value policies are created to last for the insured’s entire lifetime and grow as a pseudo investment. These policies are pretty complex and come with lots of options and moving parts. They can in theory assist in wealth creation as well as providing insurance.
Term Insurance is the exact opposite; it is a pure form of insurance. It is only insurance and there is no investment component. Consumers buy term life insurance in bands of time of guaranteed coverage. The coverage lasts a certain limited period of time after which the insurance will likely no longer be needed. The general concept with term insurance is that you spend less with the temporary insurance and invest the remaining funds in tax free or tax advantaged funds to come out ahead in the long run. The Buy Term and Invest the Rest philosophy stands in direct contrast to cash value life policies. Term insurance due to its lower cost, also allows you to afford to buy more insurance.
What is Level Term Life Insurance?
Level term life insurance is a form of life insurance that is temporary in nature. It is often called pure life insurance because the policy carries no cash value. Level term life insurance offers a level death benefit and level premium which remain the exact same each and every year. When you buy a level life policy you are guaranteed of not having any rate increases nor having any death benefit decreases. In many ways level insurance is the simplest and easiest form of a life product you can buy.
Level Term Life Insurance Definition
Level term life insurance is a type of insurance, whose death benefit and premium remain level throughout the life of the term length. Some level term insurance policies allow for convertibility to a cash value policy at some point during the contract life.
What is Decreasing Term Life Insurance?
Term insurance, though not as complex or complicated as Whole and Universal policies, does have a few options of its own. One of those options, at least in theory, is between considering a Level Term policy or a Decreasing Term policy. In reality almost all term insurance these days is level term insurance and functionally speaking decreasing term insurance is almost not offered anymore.
Decreasing Term Insurance is insurance whose yearly premiums remain level each year, but whose death benefit decreases at a small amount each year. In other words the death benefit is less each year for the same amount of money. Decreasing term policies pair well with mortgages. Some consumers like the concept of buying a life insurance policy to cover their mortgage in case of an untimely death. As the mortgage is paid down, the need for life insurance decreases, right in line with the decreasing term life insurance policy. The main advantage of decreasing term insurance is its ability to go down in tandem with your need for the coverage.
Why The Decreasing Option Is Not Popular
Decreasing term does have a few advantages, but it also has numerous disadvantages. Decreasing term life insurance has been sold less and less over the years while level life insurance has taken over. There are a variety of reasons for level’s ascent, so to speak. First off, level term is an easier and a simpler form of life insurance. People understand it. Second, many clients are put off by paying the same premium amount for it each year while at the same time the death benefit is going down. It may seem like the gallon of milk that is continually getting smaller and smaller each time you pick it up at the market, yet the price remains the exact same.
Lastly, because level term is far more common, the competition for it has exploded. As the competition has increased it has forced the insurers to continually lower their rates. This is not the case with decreasing term insurance. In other words, now days you can get so much level term life insurance for so little money that it probably no longer makes sense to even consider this alternative.
Level Term Life Insurance Is The Most Common Type of Policy
Level Term insurance is now easily the most popular form of term insurance and quickly becoming the most popular form of life insurance period. Level term has become king. Just about every company that offers some form of life insurance has a version of level term insurance. The product is so popular that the term ‘Level’ has mostly been dropped from its description. Now it is often just referred to as Term Life Insurance.
Level Term Life Insurance – Policy Options
When purchasing level life insurance you have generally four decisions to make:
- Policy Length
- Death Benefit Amount
- Endorsements / Riders
- Choice of Insurer
Your first consideration when purchasing level life insurance policy is to choose the length of the term. How long would you like your life coverage to last? Not all companies offer all lengths, but typical lengths include, ten, fifteen, twenty, twenty five and thirty year policies. The longer the term length the higher the cost.
Death Benefit Amount
The second consideration is the death benefit amount. How much insurance coverage would you like? Many term policies start at about $100,000 and go up in bands of $50K and $100K up to several million dollar policies. The exact lower and upper limits will depend on the insurer. Obviously the more coverage you select the higher the premium.
Endorsements Or Riders
Most term policies offer a series of policy options that can be added to the given insurance contract. These “riders” allow for more variability and tailoring in your own life policy. Some of the most popular riders include: Convertibility, Accelerated Death Benefit, and the Child Insurance Rider. Depending on which rider is selected there may be a cost associated with it.
Choice Of Insurance Company
The choice of which insurance carrier to choose is one that most consumers never dream matters – but the reality is that it matters a lot. Many insurers are more open to underwriting certain conditions, others offer lower pricing, and some have a much higher financial strength rating. Speaking with a competent and experienced insurance agent can significantly assist you in choosing a given insurance company. There are numerous other differences that exist from carrier A vs carrier B, it really just depends on what your given situation is and your ultimate goal.
Level Term Life Insurance Pricing
Term insurance is priced based on certain underwriting criteria combined with your age, sex, smoking status, and your overall health classification. These details combined with your selections on exactly what type of life insurance policy you want will combine to create a binding life insurance application.
Each of these components plays a major role in determining your rate. However the specific details of your health and past history are one of the aspects of pricing life insurance which is hardest to describe to clients. Be prepared to speak about your current and past medical conditions when you apply for a life product.
What Is The Best Level Term Life Insurance Policy?
The best level term life insurance policy is the policy that best suits you and your family’s needs, with the most coverage for the appropriate length of time combined with the lowest yearly premium. In other words, it depends on your situation – there is no universal answer. For some consumers the best level policy will be a non-med policy solution that can be bound in three days, for others it may be a $2 Million dollar term policy that is specifically catered towards a client that has asthma. Each family has unique needs and circumstances.
How To Apply For Level Term Life Insurance
Applying for term insurance has quite simply – never been easier. The first step can often be the hardest -Start off by getting a quote by inputting you information and choosing both a coverage amount and selecting a term length. We can help you from there.
Is Level Term Life Insurance Right for You?
The decision to purchase level term life insurance is a simple one. It is also an easy one. It’s low cost, easy to understand structure, and industry competition makes it a great choice for families and couples across the country. For most American its low cost and convertibility makes it the default choice. In contrast to the much more expensive cash value policies, clients can generally afford a much higher death benefit amount.