Level premium

A level premium is a fixed payment that doesn't change for a guaranteed period: 10, 20 or 30 years on level term insurance insurance, or for life (or a limited number of years) on whole life. Because the risk of death rises every year, a level premium is more than the true cost of coverage in the early years and less than it in the later years.

The early excess builds a reserve the insurer holds to pay for the later years. Say, hypothetically, one-year term coverage for a healthy 35-year-old would cost $15 a month at first and $90 a month by 54, while a 20-year level term policy might charge about $30 a month throughout. In whole life, that reserve is what creates cash value, since the policy is designed to last past the point where the annual cost of coverage exceeds the premium.

The benefit is predictability: you lock in your issue-age price and health class. The catch on term is what happens after the level period. Many policies switch to annually increasing premiums that can be many times the original, so buy a term long enough for your needs. See how life insurance premiums are calculated, how long a term should you buy: 10, 20 or 30 years and what happens when your term life policy expires.