Level term insurance: Pros, cons & if it's right for you

As you look for ways to secure your financial future, you've likely come across a wide variety of life insurance options. Choosing the right coverage is a big decision. You want to find something that will help support your loved ones or the causes important to you if something happens to you. You also want to make sure it fits well with your financial strategy.

Many people lean toward term life insurance for its simplicity and cost-effectiveness. Term insurance contracts are for a relatively short, defined period of time but have options you can tailor to your needs. Certain benefit options can make your premiums change over time.

Level term insurance, however, is a type of term life insurance that has consistent payments and an unchanging death benefit. Let's take a closer look at how it works, its advantages and drawbacks and what factors may influence your decision about whether it's right for you.

Level term life insurance is a subset of term life insurance. It's called "level" because your premiums and the benefit to be paid to your loved ones remain the same throughout the contract. You won't see any changes in cost or be left wondering about its value.

Some contracts, such as annually renewable term, may be structured with premiums that increase over time as the insured ages.

But with level term life insurance, you can expect:

• Stable premiums. They're determined at the start and remain the same. Having consistent payments can help you better plan and budget because they'll never change.

• Fixed death benefit. This is also set at the beginning, so you can know exactly what death benefit amount your beneficiaries can expect when you die, as long as you're covered and up-to-date on premiums.

Level term life insurance coverage provides you with financial protection that stays predictable for the duration of the contract.

This type of contract runs for a specific period—often between 10 and 30 years. You agree to a fixed premium and death benefit for the duration of the term.

If you pass away while covered, your death benefit will be paid out to loved ones (as long as your premiums are up to date). Your beneficiaries will know ahead of time how much they'll get, which can help for planning purposes and bring them some financial security.

At the end of the term, you have a few options:

• Renewal. You may have the option to renew your coverage for another term or, more likely, renew it year to year. If your contract has a guaranteed renewability clause, you may not need to have a new medical exam to keep your coverage going. However, your premiums are likely to increase because they'll be based on your age at renewal time.

• Conversion. With this option, you can convert your term contract to a permanent one that will last the rest of your life. In this case, again, you may not need to have any new medical exams, but premiums likely will rise due to your age and new coverage. Different companies offer various options for conversion, be sure to understand your choices before taking this step.

• Expiration. If you don't renew or convert your coverage at the end of the contract, it expires. That means you won't have life insurance coverage, including a death benefit, anymore. It's possible to apply for a new insurance contract, but you will need to take a medical exam, and your premiums likely will rise. Read more: Term life insurance expiring? What happens & how to plan your next move
  

Before letting your coverage expire, carefully consider your current and future financial needs as well as those who depend on you for financial support. Speaking with a financial advisor also may help you determine the path that aligns best with your overall strategy.

Most term life insurance is level term for the duration of the contract period, but not all. Some term insurance may come with a premium that increases over time. With decreasing term life insurance, your death benefit goes down over time (this kind is often taken out to specifically cover a long-term debt you're paying off). Convertible term may be level for a while until you convert it to permanent life insurance, which is usually more expensive but also has more benefits, including cash value. And if you're set up for renewable term life, then your premium likely will go up each year.

If you're exploring term life insurance and want to ensure straightforward and predictable financial protection for your family, level term may be something to consider. However, as with any type of coverage, it may have some limitations that don't meet your needs.

Here's a look at each so you can make an informed decision that aligns with your financial goals.

• Predictable premiums. Level term premiums always remain the same, making budgeting easier.
• Clear coverage period. You can pick the term that best fits your needs, allowing you to align your coverage with financial responsibilities, such as paying a mortgage or covering education costs.
• Simplicity. This type of insurance contract is very straightforward, making it easy to understand and manage.
• Affordability. Typically, term life insurance is more affordable than permanent coverage, so it's a cost-effective way to secure financial protection.
• Flexibility. At the end of your contract's term, you have multiple options to continue or move on from coverage, often without needing a medical exam. If your budget or coverage needs change, death benefits can be reduced over time and result in a lower premium.

• Coverage expiration. Unlike permanent life insurance, level term contracts have an end date, so you won't have coverage or death benefits once the policy has run out.
• No cash value. Level term insurance contracts don't accumulate cash value. The premiums pay for the death benefit, but there isn't an investment component to potentially grow the contract's worth.
• Renewal costs. As with other kinds of term life insurance, once the contract ends, you'll likely pay higher premiums for coverage because it will recalculate at your current age and health.
• Fixed coverage. Level term offers predictability. However, if your financial situation changes, you may not have the necessary coverage and might have to purchase additional insurance.

Level term life insurance offers a simple and affordable way to get coverage. But that doesn't mean it's a fit for everyone. As you're shopping for life insurance, here are a few key factors to consider:

• Budget. One of the advantages of level term coverage is you know the cost and the death benefit upfront, making it easier to budget without worrying about increases over time. That can be helpful for those who want coverage while still planning for retirement and reducing debt.
• Age and health. Generally, with life insurance, the healthier and younger you are, the more affordable the coverage. If you're young and healthy, it may be an appealing option to lock in low premiums now.
• Financial responsibility. Your dependents and financial responsibility play a role in determining your coverage. If you have a young family, for instance, level term can help provide financial support during critical years without paying for coverage longer than necessary.
• Financial goals. Review your financial strategy. If you're focused on minimizing costs to help increase other financial priorities while still maximizing protection, level term insurance may be a good fit.

Level term coverage offers a straightforward way to get life insurance without worrying about unexpected costs. However, as you're reviewing the options, make sure to find the coverage that matches your unique needs and financial situation.

Consulting with a financial advisor can help guide you through these choices, highlighting the differences and ensuring you select coverage that meets your needs.