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Level Term Life Insurance
There are a variety of different types of life insurance out there. Level term is definitely one of the most popular types of life insurance. In this article we will cover the following:
- What is level term life insurance?
- Rates, term lengths, and coverage amounts available for level term life insurance
- Limitations of level term life insurance
What is level term life insurance
Level term life insurance is designed to provide coverage for a guaranteed set period of time. This policy offers a guaranteed death benefit (as long as you keep paying the premium) and a level payment (or premium) amount.
Level term life insurance is one of the most affordable life insurance options.
Level term life insurance rates
Depending on your health, your life expectancy, your hobbies, occupation, etc. will determine your life insurance health classification. Your health classification is then used in conjunction with your age to determine how much you pay for life insurance (your premium). The amount of coverage you are looking to get will also factor into your costs.
Below are some example level term life insurance rates for a healthy male for $500K in life insurance coverage.
Sample monthly rates provided by Clearlink partner. All rates as of 12/3/2019.
Level term lengths
We mentioned previously that level terms have a set period of time where life insurance coverage will exist. So what terms can you get?
Term lengths vary from on average from 1 year annual renewable term life insurance up to 30-year level term life insurance policies. Some companies offer a 35-year level term return of premium life insurance.
The most popular term length is 20-year term insurance due to its low price and a reasonable long period of protection.
How much coverage can I qualify for with level term?
The amount of coverage someone can qualify for is typically based on a multiple of income. The applicants' income is multiplied by a factor based on age.
Although it varies slightly from one life insurance company to the next, for applicants under 40, the multiple of income typically available is 25 times.
For ages 41-50 the multiple of income drops to 20. Ages 51-55 have a multiple of income of 15. Ages 56-65 have a multiple of income of 10. For ages 66-70 the multiple of income drops to 5. And for ages 71+, each applicant is considered on a case by case basis.
For a non-working spouse, life insurance companies will usually allow the non-working spouse to get as much coverage as the working spouse, up to a million-dollar life insurance policy.
Now that you have a basic understanding of what term life insurance is, let’s move on to what term life insurance is not along with some limitations of level term.
We need to point at the outset that life insurance is meant to replace, not create, value. The most common use for a level term policy is to provide the funds to replace lost wages.
If you are looking to invest your money, life insurance is typically not the best option. That is why many financial planners recommend buying term life and investing the difference between the cost of term and whole life.
Although it is not an investment, term life is an excellent way to leverage your wealth. Due to the relatively low premiums of term, a small monthly payment can create a huge financial benefit to those you love. And the younger you are, the lower your monthly premium will be.
Term builds no cash value. One of the primary benefits of cash value life insurance or universal life insurance is cash value accumulation. The reason people want cash value is so they can withdraw proceeds from the policy down the road for various reasons, including in an emergency, to start a business, to fund an adventure, supplement retirement, etc.
However, since term builds no cash value, the policy contains no cash value to withdraw from. Just know that cash value comes with a price. Term life is much more affordable (5-10 times less) than whole life. Cash value has its place but it is not necessary for everyone.
Term life is an affordable way to protect you family should something terrible happen. It is an excellent option for providing protection for your loved one, business, or simply to pay off debt should you die. However, the policy only lasts for the term length, typically 10-30 years. Once it expires, you can keep it but the premiums will increase annually with most companies.
If your goal is to use life insurance for estate planning, permanent coverage is probably the best route.
The main reason someone would use life insurance as part of an estate plan would be to avoid taxes or to supplement the taxable portion of a large estate.
If your goal is estate preservation, term life will not provide the long term coverage that is needed.
When considering an exit strategy for your business, one potential option is to fund a buy sell agreement with life insurance. Since you desire the coverage to provide for your business succession plan no matter when you die, choosing permanent life insurance makes the most sense.
However, rather than choose permanent coverage from the start, another alternative might be worth considering.
An alternative strategy would be to choose term life while the business is growing and liquid assets are scarce. Since term life offers a conversion option, you can always convert the policy to permanent life coverage down the road when money is not as tight.
The big advantage with this option is you free up cash in the early stages of the business, while at the same time providing security for your business, family, or both.
Also, consider term life insurance to secure a small business loan or for key man insurance.
If you have family and debts you should consider getting some form of life insurance. Though it is up to you whether you want to go with a term life insurance policy or a permanent type of life insurance.
Term life is an inexpensive way to provide protection for your family. Further, even those who do not have a spouse and children, having some coverage in place to provide financial support for your loved ones should you die prematurely is simply a prudent and loving act.
If you know term is the one you can get a life insurance quote in less than 5 minutes or check out the best life insurance comapnies in the United States.