There are different types of life insurance, but normally when we refer colloquially to this type of policy, we talk about risk life or death insurance. And, more specifically, temporary life insurance. They guarantee the payment of an agreed capital or income, in case of death or disability of the insured during the stipulated time. But within this type of insurance, there are different premiums depending on their relationship with risk. We explain what life insurance with a level premium is, the most common.
Life insurance with a level or constant premium
The different types of life insurance meet different classification criteria, such as its variability, the calculation of the period it covers, the age of the insured or the risks it covers. In life insurance called risk life insurance, the most common, the premium varies each year depending on the age of the insured: they are called renewable term life insurance.
But there is also the possibility of choosing this policy with level or constant premium: the cost of insurance does not vary throughout the duration of the contract. It is very common in death insurance.
It implies that the premium will not change, neither with the age of the insured nor with the increase in risk associated with getting older. So, to compensate (even out), the insurer applies a higher initial premium than if the premium were updated every year. In some way, what would end up being charged later in a growing premium is charged in advance, with the increases in risk.
Level Premium vs. Temporary Renewable Premium
When taking out life insurance and deciding the method of payment, it must be taken into account that the level premium implies a higher initial outlay, but offers stability in the payment during the rest of the contract’s validity.
This example may help to understand it better:
If a 40-year-old person contracts, for example, life insurance for 25 years, up to age 65, they pay a premium or average price for those 25 years from the first year, with some discount, but the premium does not vary. The difference with a renewable temporary is that he would start paying much less money, which corresponds to 40 years, but would end up paying much more, which would correspond to 65 years.
Still, it could be interesting:
- For freelancers who are self-employed and do not have financial stability, they may be interested in knowing exactly what expenses they will have.
- It may also interest those who like to plan their economy.
- To those who, at the time of contracting the insurance, have the necessary capital to assume that higher initial premium and prefer to invest in that stability, due to what may happen in the future.
Knowing that you are always going to pay the same for your life insurance allows you to have greater control over the annual expense, although you also have to assess other aspects such as the duration of the contract before choosing the level premium.
The principal is payable immediately after the death of the insured. If it occurs before reaching the maximum age contemplated in the contract. If the insured is still alive, the insurance is canceled and the premiums paid are in favor of the insurance company.
The experts, in view of the mortality tables that serve as the basis for calculating the insurance premium or price and how they vary every few years, and taking into account that life expectancy is increasing, recommend choosing an insurance life with a renewable premium based on age, without anticipating a future cost.
Therefore, after understanding what life insurance with a level premium is, it is time to enter this complete online comparator and see prices and coverage to consider whether or not you are interested.
