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If you are looking for a short-term life insurance policy, 10-year term life insurance could be a consideration. Let’s examine how a 10-year term life insurance policy works and some life situations in which it could be a good fit for you and your loved ones.
What Is a 10-Year Term Life Policy?
A 10-year term life policy gives you temporary life insurance coverage for a limited period of time. After the underwriting process is completed, your policy will go into effect for a period of exactly 10 years. As long as you pay your premiums to the insurance company, your policy will remain in force.
A key benefit of a 10-year term life policy is its affordability. It's one of the least expensive policy types on the market, and your premiums will stay the same for the entire length of the term.
How Does a 10-Year Term Life Policy Work?
If you die during the 10-year time period (starting from your policy’s effective date or the day on which your coverage begins), your beneficiary would receive the death benefit in the coverage amount you choose — for example, $250,000. This money could be used for a variety of purposes, including final expenses, mortgage payments, credit card debt, educational costs and outstanding medical bills.
After 10 years, however, the policy will expire. At that point, depending on your health, you could purchase another policy to continue your life insurance coverage. There are other term policies available in 15-, 20- and 30-year lengths, putting 10-year term life on the short end of the term life insurance spectrum.
Why Choose a 10-Year Policy?
There are a number of scenarios where a 10-year term policy length could be a good option. Choosing a 10-year policy depends on your age, what you can afford and your specific needs at different life stages.
Toward the End of Your Career
If you are someone in your 50s or 60s who would like additional insurance coverage until you reach the end of your career, a 10-year term policy could help you meet this goal and may be less expensive than longer-term policies.
Desire to Increase Your Coverage
It could also be a good addition if you already have some life insurance but want to increase the coverage amount. Tanya bought a 30-year term policy when her daughter was born a decade ago, but she has just received a significant pay raise and would like more coverage. She could add a 10-year term policy to her existing insurance portfolio to give her additional coverage until her daughter moves away from home.
Affordability & Changing Needs Down the Road
It could also be a smart choice if your insurance needs might change later on. Since you may be paying less than with other policy lengths, it could also be less expensive to convert your policy before it expires.
Steve is at the beginning of his career and is interested in buying whole life insurance. Currently, he can't afford the premiums for a permanent life insurance policy. However, he buys a 10-year term policy with a conversion rider. This could let him switch to a permanent policy someday without taking a medical exam. He purchased coverage now and could convert to a whole life policy in a few years when he has a higher income.
When Could a 10-Year Term Life Policy Be Less Suitable?
A 10-year term policy might not work as well for long-term goals like providing financial protection for young children. If you buy a 10-year policy right when you have your first child, that policy will expire well before they grow up.
It might also not be the best choice when you're in your 30s or 40s and are looking for an additional policy to last your entire career. You'll likely work longer than 10 years, and your policy would expire before you head to retirement.
If you apply for a new policy after your 10-year term expires, the premiums might become more expensive — and you might have trouble qualifying if you have developed health issues. If you're looking for coverage that will last your entire career, you might consider locking in longer-term coverage with a 20- or 30-year policy instead.
How Much Does a 10-Year Term Life Insurance Policy Cost?
The cost of a 10-year term life insurance policy depends of a number of factors, related to both the specifics of the policy you purchase as well as your personal information, which will affect the underwriting process. The death benefit amount and riders (optional additional features like premium coverage if you become disabled) you select for your term life policy are the first set of factors that will determine its cost. In addition, your age, gender, health, tobacco use, family history and lifestyle and occupation will be taken into consideration during underwriting.
According to Forbes Advisor, here are several average term life insurance rates by age, term length and death benefit payout. Keep in mind, however, that actual policy costs will vary depending on individual underwriting results.
- Average Term Life Insurance Rates by Age: The average cost of a 10-year term life insurance policy with a $250,000 death benefit for a 30-year-old male or 30-year-old female is $132 annually. That same policy costs an average of $192 per year for a 40-year-old male and $168 for a 40-year-old female.
- Average Term Life Insurance Rates by Term Length: The average cost of a 10-year term life insurance policy with a $500,000 death benefit per year is $216 for a 30-year-old male and $180 for a 30-year-old female. By comparison, the average cost of a 30-year term life policy with the same death benefit would be $444 per year for a 30-year-old male and $336 per year for a 30-year-old female.
- Average Term Life Insurance Rates by Death Benefit Payout: The average cost of a 10-year term life insurance policy with a $100,000 death benefit per year is $96 for both a 30-year-old male and a 30-year-old female. With a $750,000 death benefit, the average cost is $276 per year for a 30-year-old male and $252 per year for a 30-year-old female.
Any Other 10-Year Term Life Considerations?
If you buy a 10-year term life policy and think you might want coverage later on, you could always see if it's possible to add a conversion or guaranteed renewability rider. These extra features could let you extend your coverage in the future without taking a medical exam.
Conversion lets you switch your term policy into permanent coverage that can last your entire life, while a guaranteed renewable rider lets you extend your term policy for another term. This could give you the option of longer-term coverage, even if you have a short-term policy.
It could also be worth reviewing your policy with an insurance professional before making a decision. Such a professional could help you figure out whether a 10-year term policy is right for your needs.