Level term life insurance is a type of insurance coverage in which the premium remains the same for the life of the policy. It is one of many life insurance options that you have to choose from including whole, universal and variable universal. When you opt to go with level term life insurance, you can receive several benefits that are not available with other life insurance policies. When these benefits are taken into consideration, level term may be the option that you want to go with.
1. Easy to Budget For
One of the primary advantages of level term life insurance is that it is easy to budget for. When you sign up for this type of insurance policy, you know exactly what your premium payments will be for the entire life of the policy. For example, if you have a 20 year level term life insurance policy and you make monthly insurance premium payments, your monthly payment will be the same every year for 20 years. You don’t have to worry about market factors affecting your premium payment after the first five years. You simply keep making the same payment every month or year and you keep getting the same level of insurance benefits. After the initial term of the policy runs out, you can renew the policy in most cases. However, the premium payment that you have to make is generally much higher than you would ordinarily pay.
2. Lower Premiums
Another advantage of using level term life insurance is that the insurance premiums are lower than what you would pay with some other kinds of insurance. By comparison, whole life insurance typically costs quite a bit more than what you would pay for term life insurance. This is because whole life insurance and other similar types of insurance have a cash value component. This means that part of your premium payment goes towards an investment account in your policy. The cash value grows over time, which can provide you with money that you can access through a policy loan or by cashing out the policy.
With a term life insurance policy, you do not have to pay anything towards an investment account. The majority of the money you pay goes towards providing a death benefit to your beneficiary if you die while the policy is in effect. Another reason that most term insurance policies cost much less than whole life is because they are rarely paid out. Most people who buy term life insurance outlive their 10, 15 or 20 year terms. This means that insurance companies can afford to sell them for a much cheaper premium.
In some cases, getting this type of insurance policy can be advantages because it is convertible. Many people purchase term life insurance because they do not want to spend much on monthly premiums. However, they may decide at some point that they want to have a permanent type of life insurance coverage. When this happens, most insurance companies allow you to convert your term life insurance policy over to a whole life insurance policy. In some cases, they will apply part of the money that you already paid towards the whole life insurance policy.
The insurance premiums for the whole policy will be higher than what you are currently paying for a term life insurance policy. Although they will be higher, they will provide you with a permanent life insurance policy that will pay out to your beneficiaries when you pass away. The policy will also provide you with a cash value that you can tap through a policy loan or by cashing out the policy. If you ever need access to a large source of cash, this can be a good way to get it. Policy loans are tax-free and you can pay them back on flexible terms. If you want to make sure that your family is taken care of financially when you pass away, eventually converting your term life insurance policy to a whole policy makes some sense.
While term life insurance is not for everyone, it does provide some advantages and flexibility that are not present with other types of insurance policies.