One of the first questions I get when a potential client inquires about term life insurance is, “How much should I buy? And how long should my term be?” While I believe there are a few rules of thumb to go by when purchasing a term policy, for most of us, the affordability will play a big part.
In this post, I will cover some of the thought processes you should consider when obtaining a 10-year term life insurance. I will also include the type of 10-year term coverages you can buy with sample rates by ages.
What Is a 10-Year Term Life Insurance?
Term life insurance comes in length periods (called term) from 1–30 years. The most common term periods are 10, 15, 20, 25, or 30 years. AIG’s Select-a-Term offers up to 35-years, but this is the exception, not the rule. When you buy a 10-year term, the carrier locks your rates for the next ten years, which means your rates remain level for that period.
Once the term expires, the guaranteed premium clause also disappears, and in year eleven and forward, your prices will be astronomical and will increase annually. Technically, your term policy doesn’t expire. In fact, with most companies, you can keep it until the age of 95, but this isn’t a viable option for most.
What Happens When the 10-Year Expires?
Once your 10-year term expires, you can expect one of the following four options:
- Renew the coverage on an annual basis. The rate will increase every year and will make it impossible for most to keep.
- Convert your policy to whole life without proof of insurability, and you will also get the same health classification when you first bought the policy. (If you go a preferred rate, the carrier will use the same class to calculate your new rates.)
- Drop the policy. You no longer need it because your mortgage is paid and your children are grown and can support themselves.
- Buy a new coverage. You find out that there is a need for a new policy, and you are healthy enough to qualify for a new one.
How Do I Choose the Right Term to Buy?
This should only be used as a starting point and not a definitive, conclusive answer. When determining your term length, you want to ask fact-based questions such as:
- How long do I have left on my mortgage?
- At what age will my 6-year-old be independent?
- How many years do I have left before my retirement?
- If you buy a key person life insurance: For how many years is the loan?
- Will I become self-insured (achieved financial goals and no longer need insurance) at the end of the term or will I buy another policy?
- Do I have another coverage in place? For how long and how much?
Here is what you don’t want to do: Do not try to predict your death’s future event and calculate how much premium you put in so that your beneficiaries can get a substantial return when you are gone. The first purpose of life insurance is to replace life and not to create a lavish lifestyle for your heirs. In other words, the amount of in-force coverage cannot exceed your economic requirements.
Cases for a 10-Year Term
- 10-year policies are economical. They cost less than the 15-, 20-, 25-, or 30-year term. The longer the term length, the higher the premium will be. After all, we all have an expiration date and the longer the term is, the higher the likelihood the insured will pass away. Consequently, the carrier must pay the claim.
- Short-term needs. perhaps you only have eight years left on your mortgage or your children are 14 and 16 years old. Since most financial obligations aren’t permanent, a shorter-term period is all you need.
- Key man life insurance—If you just got a business loan, the bank may need to see proof of life insurance. According to Entrepreneur’s bank term’s loan article, long-term loans can run 10 or 20 years. If your loan is only ten years, a 10-year plan may be the perfect fit.
- If you are 80 years old and need to buy a policy, a 10-year term is all you can get. In other words, the older you become, the shorter term-period you can buy.
Cases Against a 10-Year Term
- 10-year policies are too short for most. If you are 30 years old and you have a 30-year mortgage, two babies, and a housewife, you just bought the worst coverage on the market. Not only is a 10-year term not aligned with your current financial obligations, but at the end of your term, you probably will need to get a new policy which will cost you a more significant amount.
- If you are looking for estate planning coverage, avoid all term policies, especially the 10-year plan, at all costs. Estate planning calls for a permanent type of coverage.
- If you choose to keep the coverage after the ten years guaranteed term is over, you would be shocked by how expensive it will be. I say if you can afford the price difference for a longer term, take just that. If you don’t need it, you can always drop it in the future. But if you have a shorter term and need more in the future and aren’t in the best of health to qualify for a new policy, you would have wished that you had chosen the long-term period.
10-Year Term Life Policies Type and Rates
Once you conclude that a 10-year term is a length that you need, your next task is to decide on which type of coverage you want to take. There are two options from which to choose:
- A traditional term life requires the applicant to undergo an exam as part of the underwriting process. If you are budget-oriented and in good health, take this route as you will pay less.
- A no-exam coverage doesn’t require you to take an exam. Instead, you will have a phone interview with the underwriter about your health history. Besides, the carrier will run a public database search from the Medical Information Bureau, Motor Vehicle Report, and prescription database to classify your application and calculate the rates. Depending on your age at the time of application, you may not be able to get more in coverage amount when buying no-exam life insurance. Also note, the older you are, the more you would pay for this type of coverage. You may want to ask yourself if the convenience of not taking an exam is worth the extra cost.
10-Year Term Life Insurance Sample Monthly Rates
10-Year Level Term Male
10-Year Level Term Female
10-Year No-Exam Male
10-Year No-Exam Female
Back to the original question: Should you even bother buying a 10-year term?
Your goals, age, and overall needs will dictate if you should get a 10-year length or choose another option. Anytime you are in your 30s to 50s and can afford to get the 20- or 30-year term, you should go for the longer length. The reason is that it’s better to pay more in premium than to try to get new coverage at the end of your term.
Not only would you pay more, but you also may not qualify for one if you developed a severe pre-existing condition which will prevent you from getting another policy. If you bought a 20-year term and, after 15 years, you no longer need it, drop the policy. You can go ahead and run term life insurance rates on this page.