how level premium insurance works
level premium insurance premiums are fixed for the life of the policy for a term policy this means for the length of the term e g 20 or 30 years and for a permanent policy until the insured passes away level premium policies will typically cost more up front than annually renewing life insurance policies with terms of only one year at a time but over the long run level premium payments are often more cost effective this is because the higher premiums have typically been offset by an increase in coverage during a period when a policyholder typically has more medical issues the amount of level premium paid on a policy will depend on one s age and health the younger and healthier one is the lower the level premium will be for term life policies the length of the term will also matter longer dated policies will cost more per month than shorter policies the length of a term policy will often be selected to best suit one s specific needs for example if the primary purpose of the death benefit is to provide income to support very young children and fund college expenses a 20 year level premium might be appropriate however if these children are already in their early teens a 10 year level premium may be sufficient if the insured is the same age the 10 year term policy would cost less all else equal than the 20 year policy s premiums some forms of life insurance are vulnerable to premium increases or are sensitive to interest rate changes such as universal life or variable life policies with level premium insurance premiums and the death benefit are guaranteed as long as the policy is in force or unless the policyholder requests a change 1level premium term insurance vs decreasing term life insurancewith level premium term life insurance the policy pays a benefit if the policyholder passes away during a fixed period whatever the term of the insurance is if death occurs outside of this term timeframe there is no payout with decreasing term life insurance the amount of coverage 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 ensures that upon death the repayment mortgage or other specified debt gets settled 1other specialty types 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 death benefit for a fixed periodless expensive than whole lifecan be used for specific stages and ages of lifeno death benefit if policyholder dies outside of fixed periodmay not be long enough to cover the policy holder for their lifetimeexample of level premium insurancethe age and timeframe of the policyholder are both crucial factors in determining if a guaranteed level premium policy is optimal versus an annual renewable term art policy which increases as the policyholder ages 2for example suppose two female friends jen and beth both 30 years old and in good health opt to buy life insurance they each seek a 30 year term with 1 million in coverage in years two through five jen continues to pay 500 per month and beth has paid an average of just 357 per year for the same 1 million of coverage if beth no longer needs life insurance at year five she will have saved a lot of money relative to what jen paid but if beth still thinks she needs 25 more years of life insurance coverage she will start to be at a relative disadvantage each year as beth gets older she faces ever higher annual premiums meanwhile jen will continue to pay 500 per year 