What is Level-Premium Insurance
Level-premium insurance is a type of term life insurance for which the premiums are guaranteed to remain the same throughout the duration of the contract. The most common terms are 10, 15, 20 and 30 years, based on the needs of the policyholder. The premium paid on this type of policy will be higher at the beginning of its life but lower towards the end of its life. Level-Premium is different from term life insurance policies, as they have premium rates that rise as the policies age.
Level-Premium Insurance Explained
This policy is a type of term life insurance, meaning it provides coverage only for a specified duration of time and it has only a death benefit, as opposed to a savings component. Therefore, when looking at level-premium insurance, you should carefully consider the length of coverage best suited to your needs. For example, if the primary purpose of the death benefit is to provide income to support very young children and/or fund college expenses, a 20-year level premium might be appropriate. However, if these children are already in their early teens, you may need only a 10-year level premium.
If you enter into this type of insurance policy, it is important to ensure that the premium level is guaranteed. In many cases, it is guaranteed. But in some cases, a policy's premium level is not guaranteed, and the company can actually raise it to a new premium level which will have to be paid for the remainder of the policy's life.
With level-premium insurance, premiums are set and will never be subject to change unless you change your policy. The payout for the policy remains the same throughout the term, unless your change your policy. The policy is effective for protecting loved ones after your death, for covering an interest-only mortgage or for covering other debts.
If you did during the term of the policy, your family could receive a cash payout that could be used to pay off an existing mortgage, help with ongoing household bills, pay for your funeral or memorial service or provide for your family's basic needs.
Level-Premium and Decreasing Term Life Insurance
While the two types of life insurance are similar, they nonetheless have key differences and different applications and uses. With level-premium insurance, the policy is meant to be paid out if you pass away during a fixed period of time (the term). If you pass away outside of the term, there is no payout. With decreasing term life insurance, the amount of cover declines over time, similar to the way a repayment mortgage decreases over time. Decreasing term life insurance is usually purchased to pay off a specific debt, like a repayment mortgage. The policy basically makes sure that, upon death, the repayment mortgage, or whatever the particular debt is, gets settled.
Other kinds of life insurance include "Over 50s life insurance," which is a specialized kind of insurance geared toward people between the ages of 50 and 80. There is also "Joint life insurance," in which two people in a relationship take out individual policies. The policy will cover both lives, usually on a first death basis.