Level Death Benefit

AAA

DEFINITION of 'Level Death Benefit'

A life insurance payout that is the same whenever the insured person dies, whether shortly after purchasing the policy or many years later. Compared to a policy that provides an increasing death benefit, one that provides a level death benefit will be less expensive (that is, the premiums will be lower for the same amount of initial benefit). However, inflation will diminish the value of the level death benefit over time.

INVESTOPEDIA EXPLAINS 'Level Death Benefit'

A level death benefit is one of two death-benefit options available under many universal life insurance policies; the other is an increasing death benefit.

A universal life policy has two components: a cash value component and a pure insurance component. When the policy holder chooses the level death benefit, the value of the pure insurance component decreases over time to keep the death benefit the same while the policy’s cash value increases. If the policy holder chooses the increasing death benefit option, the pure insurance component will remain the same over time; so as the policy’s cash value increases, the death benefit increases.

Term life insurance policies also offer a level death benefit; whether the policyholder dies five years into the term or 20 years into the term, the death benefit will be the same. 

RELATED TERMS
  1. Guaranteed Issue Life Insurance

    A type of financial-protection policy that provides cash to a ...
  2. Investment Income Sharing

    Profits made through the investment activities of a mutual insurance ...
  3. Co-Reinsurance

    A reinsurance company that is participating in a reinsurance ...
  4. Cut-Through Clause

    A reinsurance contract provision that allows a party other than ...
  5. Corridor Deductible

    Expenses that are paid by the insured in excess of an insurance ...
  6. Exposure Trigger

    An event that causes a policyholder’s insurance coverage to kick ...
RELATED FAQS
  1. How does life insurance help high net worth individuals protect their businesses ...

    Life insurance protects the businesses and personal wealth of high-net-worth individuals, or HNWI, by guaranteeing their ... Read Full Answer >>
  2. What is the usual profit margin for a company in the insurance sector?

    The best estimates of the average insurance company net profit margin are between 3 and 8%, with a likely median average ... Read Full Answer >>
  3. What financial ratios are most useful for an investor to evaluate the liquidity of ...

    An insurance company, like any other nonfinancial company, needs access to liquidity in case it needs to fulfill its debt ... Read Full Answer >>
  4. In what ways does government regulation impact the insurance sector?

    Regulation is not consistent among all forms of insurance. The kinds of regulations imposed on AIG for guaranteeing credit ... Read Full Answer >>
  5. What are the benefits of high net worth insurance?

    High-net-worth individuals (HWNI) face unique insurance challenges and tend to gravitate towards different insurance products. ... Read Full Answer >>
  6. What are the restrictions for naming a given individual as my contingent beneficiary?

    Life insurance is an important part of estate planning. It allows you to ensure that you can financially take care of the ... Read Full Answer >>
Related Articles
  1. Insurance

    Why You Don’t Need Mortgage Protection Life Insurance

    Mortgage protection life insurance sounds great in concept - a guarantee that your mortgage will be paid off if you die unexpectedly. But take a hard look at what you get before choosing it.
  2. Insurance

    Life Insurance Policies For Stay-At-Home Moms

    Here's a rundown of whether or not it is worth it to purchase life insurance if you are a stay-at-home mom.
  3. Budgeting

    The Best Type Of Life Insurance For You Right Now

    Different stages of life call for different amounts of life insurance coverage. Find out what you need, when and why.
  4. Insurance

    When Life Insurance Isn't Worth It

    So, you're thinking about buying life insurance, but do you really need it?
  5. Insurance

    Why You Should Buy Life Insurance

    If you haven't thought about life insurance or you're toying with the idea, we give you some reason why it might be wise to buy.
  6. Budgeting

    Adjusting Your Life Insurance Policy After A Move

    Your life insurance policy needs to be updated numerous times during your life. After you move is one such time.
  7. Insurance

    5 Things You Didn't Know About Life Insurance

    Life insurance policies can be simple or complex; make sure you know as much as you can before setting up yours.
  8. Insurance

    4 Things That Keep You From Getting Life Insurance

    We look at four common reasons people give for not applying for life insurance, and see if they're legitimate.
  9. Insurance

    5 Signs You Need Life Insurance

    If you can only afford to invest or buy life insurance, experts say you should buy the insurance.
  10. Professionals

    Indexed Universal Life Policies: Watch These Risks

    By properly vetting indexed universal life policies, advisors and savers can avoid contracts that could prove overly costly over the long run.

You May Also Like

Hot Definitions
  1. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  2. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  3. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  4. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  5. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  6. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
Trading Center