What is Level Term Life Insurance?
Is a Lump Sum Life Insurance Policy the Right Option to Choose?
Nov 7, 2009
Taking out life insurance isn't just a question of getting any old policy in the hope that that will work. Thinking about how a policy will be paid and its value are important considerations. One of the most popular options here is level term life insurance. Why do so many people choose this kind of product?
What is Level Term Life Insurance?
These policies are designed for last for a specific time-scale. So, for example, the individual could take out cover that lasts for anything from 1 year to 30 years. During this term the policyholder is covered with life insurance and the policy provider will commit to making a payment if they die during this time.
Level term life insurance also sets out the payment that will be made in the event of death. This payment is fixed at a set amount for the term of the policy. It will pay this sum regardless of when the policyholder dies (as long as their policy is still ongoing).
Why is Level Term Insurance so Popular?
This is perhaps the easiest life policy to arrange. It may also work out cheaper than other options in the sector. The individual simply has to pick the amount for which they want to be insured and takes out a policy on that basis. The aim here is to give their beneficiaries a lump sum payment that will be sufficient to meet all of their financial needs at any time during the policy's term.
What are the Alternatives to Level Term Life Insurance?
There are a couple of other options that may be worth considering. These include:
- Decreasing term: Here the policy works in much the same way but the insured sum will go down over time. This kind of deal is often used by people to cover a mortgage or to take into account the fact that their family's needs for financial support will be reduced over time.
- Family income benefit: This policy doesn't pay out a one-off lump sum but is based on regular income payments to the policyholder's beneficiaries. Some people prefer having an income to manage rather than a lump sum.
- Whole life: Here the policy doesn't have a term and is set up to last for life. This is a different kind of insurance product which may be worth investigating separately.
Making the right choice of life insurance policy is important. This can affect the costs that will have to be made and the ultimate sum that may be paid in the event of a claim. Decreasing term insurance, for example, may be cheaper than a level term policy but the payment made may not be as big over time. Thinking about how much life insurance is needed may also be worth thinking about at this stage.
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