Level term insurance is a type of life insurance that provides consistent coverage over a specified amount of time. The face value of a level term policy remains the same for the duration of the period selected. Life insurance terms can range from as little as one year to 30 years or more, but most commonly, level term coverage lasts for 10, 15, or 20 years. It provides temporary protection and does not build cash value.
Many level term policies are sold with guaranteed premiums that never increase during the coverage period. Some don't provide premium-rate guarantees, however, and the insurance company can raise the premium during the specified term of coverage. Premium increases are intended to account for the rising probability of the insured's death in any given year.
The premium amount charged for a level term insurance policy will vary, depending upon the particular insurance company and the applicant's unique circumstances. Certain lifestyle choices, health conditions, and occupations may cause the insured to be charged higher rates, and in some cases, insurance applications may be rejected because of health problems or other risk factors. There are some insurance companies willing to insure higher-risk applicants, however.
Typically, level term insurance premiums are lower than those of permanent insurance policies. The length of the coverage term directly influences the premium charged, with higher premiums generally charged with longer terms. This type of insurance is usually less costly than annual renewable term policies, however, even for longer coverage periods.
The amount of insurance an individual needs depends on many factors, including his or her estimated funeral costs, debts, and the long-term needs of any dependents. If the insured is married with children, his or her coverage needs are likely to be higher than those of an unmarried person with no dependents. Generally speaking, however, a life insurance policy should cover at least six to ten times the insured's yearly income.
To apply for level term insurance, an individual typically needs to complete an application and provide answers to pertinent questions. Often, these questions are of a personal, medical nature, and a medical examination is often required as well.
Usually conducted by a licensed medical professional, this examination is intended to assess the applicant's health and assist the insurance company in determining the level of risk inherent in insuring the individual. Furthermore, blood and urine tests are also frequently required when applying. Some companies offer level term policies without requiring a medical exam, but a cap is usually placed on the amount of coverage provided and premiums are higher without an exam.