When it comes to getting life insurance it can be confusing to navigate between hundreds of companies with each company offering dozens of products. Its understandable that when you think life insurance, you think “I just want to pay a monthly payment for a set period of time and if something happens to me my family gets money.” All you want is for life insurance to be that simple. You don’t want to hear about cash value, coverage till you’re 300 or the tax sheltered investments, you just want life insurance! Well if that’s what you want then level term life insurance is exactly what you’re looking for. It’s the most popular product in the life insurance industry and with good reason. Let’s break down what level term life insurance is, how it works, what it should have and what companies offer it.
What is a Level Term Life Insurance Policy?
Level Term refers to a term life insurance policy that provides you with “level” premium rates throughout the entire length of the policy. That means that during the term period your rates will not go up or down and neither will your coverage amount. As long as you continue making your monthly premium payment your coverage will remain in force for the entire duration of the term. For example, let’s say you wanted a 20-year level term life insurance policy for $1,000,000 worth of coverage. If your monthly premium is $50 a month, that won’t change for 20 years and you will be covered for $1,000,000 for 20 years as long as you pay the $50. If something happens to you in the meantime, your beneficiaries will receive the death benefit
What Happens Beyond the Term?
After the term period is over with one of three things can happen. Your coverage can either expire, you can renew it every year, or you can exercise the convertible option (more on that soon). There is a common misconception with all term life insurance policies that once it is expired you get to enjoy being covered without having to continue paying premiums. That is not how it works. Your coverage WILL expire at the end of the term period if you do not exercise the two other options given to you with a good level term product.
Renew
This is an option that allows you to renew the coverage once the term is up, annually. You can do so without having to prove you are in good health. In fact, you will be able to renew at the same health rating you qualified for at the beginning of the term. This is the case even if you contracted a serious illness in the meantime. Sounds too good to be true? It’s not. Even though you get the same health rating your rates will adjust to your new age, every year. This will cause a dramatic increase in your rates over time and I personally don’t encourage the use of this option unless your need for life insurance doesn’t stretch beyond a couple years.
Convert
Any good level term policy should come with this option at no extra cost. If your need for life insurance will continue over the course of the next couple decades, then this is a great option to use. It’s often called the “Convertible Rider” or “Option to Convert.” This rider allows you to convert your level term policy to a permanent policy (one that doesn’t expire) without having to prove good health. You would simply have to do an age adjustment to your new age and then enjoy more level premiums for the rest of your life.
Can I Customize a Level Term Policy?
Even though level term provides the simplicity of being understood doesn’t mean It’s a “Plain Jane” product. A good level term life insurance policy comes with a lot of add on’s that can help make your life easier in certain situations.
Let’s go over them briefly.
Waiver of Premium
The waiver of premium rider allows you to forego premium payments if you become disabled while still being able to keep your coverage in force. If you are at risk to become disabled, this is a good option to keep the coverage in force while you get back on your feet financially.
Accelerated Death Benefit
This rider usually comes with the policy at no extra cost and it does what it’s in the name. This rider allows you to “accelerate” a portion of your death benefit If you are diagnosed with a terminal illness. Usually you can get up to 50% of the coverage amount to do with as you please. You can use it to fight the terminal illness or go skydiving. Whatever you use will be subtracted from the total coverage amount and your beneficiaries will get the rest.
Critical Illness
Much like the accelerated death benefit rider, the critical illness will give you a proton of your coverage amount, except in the event of a critical illness. This can be things like cancer or heart disease. Talk to your life insurance agent about which illnesses your particular product offers covers under this rider.
Child Rider
The child rider allows you to pay an extra sum to get $10,000 worth of coverage on each of your kids. Usually the coverage lasts up until they over 20 years of age at which point they should be able to convert it to a policy of their own.
Return of Premium
This is a popular product that I’m not a big fan of. The return of premium rider allows you to get all your premium payments back at the end of the term. Sounds good right? If you live you get ALL your money back. The only issue is this would double your monthly payment. In my opinion, it’s better to out a way that extra money into a modest investment and have it make you money. By the time the term is over those premiums won’t be worth nearly as much as they were at the beginning of the term so it’s better to avoid return of premium and invest the rest.
When Should I Consider Level Term Coverage?
Term coverage is temporary coverage and for this reasons it’s good for temporary financial responsibilities. Your kids won’t be in college forever and that mortgage will get paid off eventually. For this reasons different terms exist for 10, 20 or 30 years depending on your need for life insurance. As you age your need for life insurance should decrease so when the term expires you should be good to go. If you still need coverage it will for things like income replacement and final expenses associated with death.
So going back to the original question, when should get a term life insurance policy? The second you have someone depending on your income. Level term is also a good option to have some coverage in place if that is all you can afford. Some coverage is better than non at all so it’s better to secure something in place during the critical years until things improve.
Level Term Life Insurance Companies
All the A rated life insurance companies offer level term as their standard term life insurance product. Always make sure work with A rated life insurance company and make sure you are getting the best offer that you possibly can. Working with an independent life insurance agent will help you navigate this process. Independent means the agent or agency isn’t tied down to one company and can offer you the best rate on the market. Like a Priceline for life insurance. For all the companies that offer level term simply use the quote engine on this page or click here. You can do so without leaving any personal information.
Companies like Metife, Prudential, Protective, AIG, Voya and any other A rated carrier you can think of offer level term coverage. Even no medical exam companies like Sagicor and Fidelity offer level term life insurance.
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