The Hidden Risks of Level Term Life Insurance: What You Need to Know Before Signing Up
Level term life insurance is a life insurance plan that offers protection for a predetermined length of time, often between 10 – 30 years. The death benefit and premiums are set for the duration of the policy. Despite the advantage of level term cover as a standard option, there are certain unrecognized risks that you should be aware of before getting one. Let’s have a look at them before you decide to sign up!
What is the Procedure for Level Term Life Policies?
Before delving into the possible risks level term life insurance poses, let us know a bit about the procedure to follow.
Level term life insurance plans are simple, with only a few moving elements compared to cash-value permanent life insurance policies.
Nearly all life insurance companies offer level life insurance with the same immovable components:
- The coverage ends with the completion of the chosen period
- The death benefit remains constant during the policy’s lifetime
- The recurring fees remain consistent throughout the policy
- Neither interest nor a cash value element is present
For any life insurance coverage, a guarantee in the form of an undertaking is necessary. This typically entails a life insurance medical examination (though it isn’t always required), a questionnaire about your medical conditions, routine, and several digital reports.
Typically, the insurance provider will ask for data from the Medical Information Board, statements from an inventory of prescription drugs, and information about your driving history from the last three to five years.
The insurer will give your request a medical categorization once the underwriting procedure is finished. The prices for insurance policies will then be determined under that categorization.
The kind of life assurance you are looking for and the contract term period you need will also affect the cost and the valuation data. A 30-year contract will undoubtedly have greater costs than a 10-year term plan since the insurer would be exposed to liability for an extended period and would have a short time to collect payments from the insured customer.
Last but not least, the price of any extra riders you choose to get will also impact the overall cost of your level term life insurance coverage.
Things to Consider Before Signing Up for Level Term Life Insurance
Here are a few things to consider before getting the level term life insurance:
1. Your Premiums May Increase After the Policy Term
While your premiums remain constant throughout the coverage, they might skyrocket once it’s over. Especially if you are older or have health difficulties, you could have to pay substantially higher rates if you wish to renew your insurance.
2. Your Coverage May Not be Enough:
Level term life insurance can offer substantial security throughout the policy period. Still, it might not be sufficient to satisfy your family’s requirements if you pass away after the term has expired. You can consider getting a permanent lifetime coverage policy, such as whole life insurance.
3. You May Not Be Able to Convert Your Policy
A medical evaluation is not required to convert some level term life insurance policies to permanent life insurance plans like whole life or universal life. It’s vital to check with your insurer because not all policies provide this choice.
4. Your Beneficiaries May Face Tax Implications
Your beneficiaries can be subject to taxes if they collect the death benefit from your level term life insurance policy. The recipients may be required to pay both federal and state taxes on the death benefit, depending on its size and their tax level.
5. Your Policy May Not Pay Out If You Die During the Contestability Period
Every life insurance policy has a contestability period, often two years, where the insurer can look into the data you gave on your application. They may reject your claim or lower the death benefit if they discover that you lied or concealed information.
In today’s world, insurance coverage is essential for financial security and peace of mind. However, it is crucial to thoroughly assess your needs and all the potential risks before purchasing level term life insurance. To make a well-informed decision, consult a financial advisor or an insurance agent.