Term Life Insurance Articles
Why Are Level Term Life Insurance Policies So Affordable
2010-01-26
Term life insurance quotes tend to be lower than quotes for many other types of life insurance, such as whole life insurance, and this makes them a popular choice for consumers on a budget who are looking for a way to provide for their families after their deaths. Of all the types of term insurance, level term life insurance is the least expensive, which leads many policy buyers to question why they're so affordable (and more importantly, where the catch is). Understanding the difference between the different types of term life insurance coverage is a vital part to picking a policy that works for well for you.
Level term life insurance provides a set amount of money to the beneficiaries of a policy if the policy holder dies within the term of the agreement--usually 10, 20, or 30 years. If the policy holder doesn't die, then the beneficiaries (and the policy holder) don't receive anything. Therefore, while level term policies provide a lot of security for the holder of the policy and his or her family, they're not the best form of investment available. This means that they're a great deal for the insurance companies. Policy costs are rated according to mortuary tables that estimate the possibility of the policy holder's death, and in most cases, the insurance company pays nothing. They simply collect money until the term of the policy ends.
The "level" in the level term life insurance indicates that a steady premium is paid across the entire life of the policy. The premium paid on month one will be the same as the last premium that the policy holder pays. The longer the term, the higher the premiums, since there's a proportionally higher chance of death. This differs from the setup of an annually renewable policy, in which the policy holder decides whether or not to keep the policy at the end of every year. Annually renewable policies start out less expensive than level policies, but they're far more expensive over time, because at the end of every year, rates are increased.
Therefore, a level policy is the least expensive term arrangement possible in the long term, and really, the longer the term, the better the deal. They're extremely affordable, and a great choice for anyone that wants basic coverage for his or her family. There are better investments available, especially when you consider the return of premium term life insurance and the aforementioned whole life policies, but as far as an inexpensive answer to life insurance, there's not a better deal on the market than level term life insurance.
