A level premium is a premium structure in which the amount you pay remains the same for a specified period or for the life of the policy. This is the most common premium structure in life insurance and is a key feature of both level term life insurance and whole life insurance. The predictability of level premiums makes budgeting for life insurance coverage straightforward and eliminates the uncertainty of rising costs.
In level term insurance, premiums are fixed for the duration of the term (10, 15, 20, or 30 years). The initial premium is higher than what would be actuarially necessary in the early years but lower than what would be necessary in the later years — effectively, you overpay early and underpay late, averaging to a level amount. This front-loading of cost is what allows premiums to remain constant even as the insured ages and mortality risk increases during the term.
In whole life insurance, premiums are level for the entire premium-paying period, which is either the insured's lifetime (ordinary life) or a specified number of years (limited-pay). The level premium for whole life is calculated to fund both the current cost of insurance and the cash value accumulation, resulting in a higher premium than term but with the benefits of lifelong coverage and savings. Guarantees are backed by the financial strength and claims-paying ability of the issuing carrier.
The alternative to level premiums is the increasing premium structure used in annual renewable term (ART) policies, where premiums start very low but increase each year. While ART may cost less in the first few years, the cumulative cost over 10 to 20 years is typically higher than a level term policy for the same period. A licensed agent in our network can help compare level and increasing premium structures for your specific situation.