What is the Meaning of Level Term Insurance & How it Works?

In this type of term insurance policy, the premiums, sum assured, and other benefits stay constant throughout the policy duration. Generally, for these plans, the insurance company decides the sum assured. However, you have the flexibility of deciding the duration as per your requirement.

There are several advantages and disadvantages of level term life insurance, which you must know to make a well-informed choice.

The advantages of level term insurance policies are as follows:

• Assurance: The plan is very simple to understand, as you can be sure about the amount that your beneficiary will be receiving after your death. Hence, it becomes easier to plan your finances accordingly unless you outlive the policy duration.
• Stability: The policyholder and insurer can discuss among themselves to select an appropriate amount. Hence, it is considered a stable plan as you do not have to worry about coverage and at the same time the premiums stay constant throughout.
• Affordable: The premiums of this policy are pretty affordable. Hence, paying them will not act as an additional burden on your finances. Also, your monthly budget will not get disrupted on purchasing this plan.
• Annual Renewal: Towards the later stages of this policy, you will have to pay the premium only once a year. Hence it will be easier for you to save money for the same and you do not have to face any financial crunch.
• Add-Ons Available: You can choose several additional riders for your plan according to your lifestyle needs. This will provide you customised coverage on your policy and ensure that you stay protected from predictable adverse situations.
• Lump-Sum Payout: Your nominee will receive all the money at once after your death. Hence, they can use this money according to their need and do not have to stay dependent on the insurance company for the same every month.
• Tax Benefit: Your nominee will not have to pay any tax on the claim amount according to Section 10D of the Income Tax Act. Thus this money acts as a safety net which they can use to the fullest to meet their financial requirements in your absence.
• No Hidden Charges: There are no hidden charges involved in this policy. Hence, you can easily plan your budget and save accordingly with the assurance that there will be no extra charges or sudden increase in premiums. Apart from this, there are several cons as well that you must know before purchasing this plan for providing financial assistance to your family after your demise.

The disadvantages of level term insurance policies are as follows:

• Rates Are Based on Current Medical Condition: Insurance providers decide the coverage of the policy on the basis of your current physical health. However, if, after purchasing the policy, you discover or develop any serious health issues, you won't be able to increase the coverage amount.
• Consistency in Policy Premiums: The consistency in the policy premium can prove to be a significant disadvantage as well since your family's financial requirement keeps changing. If the money turns out to be more than what they need, then there will be no problem. However, if it falls short, then there can be a severe financial crunch.
• No Benefits on Outliving the Policy: If you outlive the policy period, you will not be able to receive any additional benefits. Since no one can predict their death, it becomes challenging to select a suitable policy tenure to ensure financial coverage for your family after your demise.
• Possibility of Requirement for a Second Plan: If the policy expires before your death, you might have to purchase another premium. However, due to an increase in age, the premiums will also be expensive at that time, which can pose a financial burden on you. Furthermore, there are some things that you must consider before purchasing a term insurance policy.

Below are some things that you must consider before buying a term insurance policy:

• Lifestyle of Family Members: Understanding the current lifestyle and future requirements of your family is essential to select the right premium. Otherwise, the money can fall short and won’t offer sufficient financial coverage after your demise.
• Selecting Appropriate Policy Tenure: You must carefully evaluate the tenure of your policy based on your current age and medical conditions. Although there is no certainty to life, you can always select longer tenure to stay insured for a longer duration without purchasing another plan.
• Current Financial Status: While planning for future financial coverage, you must also consider your present monetary capacity. Otherwise, if you choose a higher coverage amount, your current premiums will also be considerably high, which might act as an increased financial burden.
• Current Medical Conditions: If you are going through any critical health condition, you must make sure to declare the same to your insurer. This will ensure that you get sufficient coverage and do not have to worry about financial assistance for your family.
• Riders: You must select appropriate riders that are beneficial for you. This will ensure that your family stays financially protected if you embrace death under any unforeseen circumstances. A level term insurance policy can bestow numerous benefits to your family in case of your unfortunate demise. However, you must consider its disadvantages and certain other factors to decide if it is the right choice for your financial needs.