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For those who have just a decade’s worth of financial obligations left, like a mortgage or business loan, a 10-year policy is ideal. It’s also a popular option for people who are counting down the years until they retire. A 10-year term offers peace of mind for policyholders and financial security for their loved ones.
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How do 10-year term life insurance policies work?
With a 10-year term, you’ll get 120 months of coverage for a reasonably low cost. Your premiums are locked in, which is why it’s a good idea to take out a policy as soon as you need it to get the best possible rate.
Your rate is determined on a range of factors such as your age, health, lifestyle, occupation and medical history.
What is the typical cost of a 10-year term policy?
To calculate the typical cost of a 10-year policy, let’s look at $250,000 of coverage.
A 30-year-old nonsmoking man living in Los Angeles, California can expect to pay between $9.46 and $31.94 a month, according to our research. As always, the rates for a smoker are higher. In this case, they could start at $29.02 and go up to $57.71 a month.
A 30-year-old nonsmoking woman could be charged between $8.60 and $24.50 a month. If she smokes, the rate could climb to somewhere between $23.65 and $46.03.
Sample rates for a 10-year $500,000 term life coverage policy
|25||$13.76 – $53.38||$12.04 – $36.75|
|30||$13.76 – $53.81||$12.04 – $41.13|
|35||$13.76 – $57.75||$12.47 – $43.31|
|40||$17.20 – $67.81||$15.48 – $49.88|
|45||$25.80 – $91.88||$22.79 – $72.19|
|50||$38.27 – $118.56||$32.68 – $105.88|
|55||$63.41 – $164.16||$48.16 – $124.96|
|60||$101.91 – $241.96||$69.66 – $177.96|
|65||$174.56 – $395.71||$113.52 – $275.21|
|70||$285.60 – $781.56||$180.00 – $524.71|
Life insurance companies that offer a 10-year term policy
What is my risk of dying in the next 10 years?
Age is a life insurance carrier’s number one consideration. The reason for this isn’t a secret: The older you are, the more likely it’ll have to pay out your policy. In determining your rate, underwriters look at life expectancy data.
Let’s continue with our example of a 50-year-old policyholder.
For the typical 50-year-old man, the risk of dying in the next 10 years is 7.35%. For the average woman, it’s 4.57%.
To put this into context, a man who turns 65 today can expect to live until 84.3, while a woman is likely to live until 86.6. Keep in mind these are average numbers — around a quarter of 65-year-olds will reach their 90th birthday.
Who should buy a 10-year policy?
Your life insurance policy should cover your longest financial obligation. So in short, a 10-year policy is suitable for anyone who has just a decade left of financial responsibility. With term life, you should only purchase as much insurance as you need.
It makes sense to purchase a 10-year policy — and the security that comes with it — for these specific situations:
- To protect your income. Do you have dependents relying on your income? A 10-year policy is cheap, and while it may not last long, it’s better than not having a policy at all. It protects your family’s financial future as you work toward paying off any debts you may have, like a credit cards or car loans. If you die, your policy provides your family with the money they need to live, as well as pay off any remaining debts and cover your funeral expenses. When you’re in a better financial position, you can look at purchasing a new, longer policy or converting to a permanent policy.
- To pay off debt. Speaking of debt, a 10-year policy is ideal for temporary financial needs. If you’re taking out a 10-year mortgage on your home or have 10 years left on your loan, you may only need a decade of coverage. By taking out a policy, you’ll have the peace of mind in knowing your family won’t be burdened with those payments if you die.
- To cover your kids’ college costs. Maybe your last policy expired, or maybe you had kids later on in life. Either way, most people buy a policy that takes their children through college and into adulthood, when they begin working and earning money themselves. If you do the math and realize there’s only 10 years before your children are in the workforce, this term may suit you.
- To plan for retirement. Seniors in their late 50s and 60s who are edging closer to retirement tend to opt for a 10-year policy. At this stage of your life, you’re probably in a good career position and funneling more money into your savings accounts and 401(k). A term life policy can protect your income, and any financial responsibilities that may crop up, such as buying a vacation home or sending your adult child to graduate school. If you die, your policy offers your loved ones the funds to pay for those obligations.
- To supplement your existing policy. Say you planned ahead and bought a $250,000, 25-year term policy when you were younger. Ten or 15 years later, you crunch the numbers and realize that your policy is no longer sufficient. You now have a mortgage, a business or another kid, and you’re underinsured. You can ladder your life insurance by purchasing an additional policy to protect your family from those financial obligations. If you just need a short-term boost, a 10-year policy might be the right fit for you.
- To secure a loan. If you need to take out a personal or business loan, you secure the loan with a life insurance policy. This reassures lenders that you have every intention to pay back the money — even if you die — and gives them another reason to approve the loan. Think of it as a backup plan.
What happens if my policy expires?
When your policy expires, so does your coverage. Like most types of insurance, life insurance is protection you pay “just in case” — so in that way, reaching your term limit is a good thing. It means you’re alive and hopefully well. At this stage, there are a few options to choose from:
- Renew the policy. Do you still need coverage? You can opt to purchase a new policy before yours expires, or if you’re younger than 70. The rate reflects the market rate as well as your age and health, so it will be higher. You may also have to take another medical exam. If you decide to go down this route, think about your financial obligations and how long you’ll need coverage. Since premiums rise as you age, it can be more cost effective to buy a longer term. For example, if you believe you’ll need coverage for another 10 to 20 years, you might be better off buying a 20-year term, rather than two consecutive 10-year terms.
- Convert the policy. Most term policies are convertible, meaning you can upgrade to a permanent policy, such as whole life or universal life. With most providers, you can convert without providing extra evidence of your insurability, like taking another medical exam. While permanent policies are much more expensive, they offer lifelong protection and never expire as long as you pay your premiums. They also have an investment portion, making them ideal for people who want their policy to play a bigger role in their financial and estate planning.
- Let the policy lapse. If you no longer need coverage, no action is required.
Should I choose a longer or shorter policy?
It depends on your financial situation and where you are in your career. Ideally, your life insurance policy should cover your longest and most expensive financial obligation, or take you up until your retirement. That way, if you die before, your family won’t be responsible for your debts, and your policy will provide the income they need to live.
One case where you might need a shorter policy
If you need to take out a business loan, a short-term policy can fast-track your approval by a lender. Basically, it guarantees the money will be paid back, even if you die.
One case where you might need a longer policy
If you have a 15-, 20- or 30-year mortgage, you’ll want to consider a policy that covers those payments. Remember, your debt doesn’t die with you, so if you die, your family will be responsible for making those payments.
If you have loved ones relying on your income, a term life insurance policy is an affordable way to protect them. Typically, people purchase a 10-year policy with a specific purpose in mind, whether that’s to cover their mortgage and debts, secure a loan or plan for retirement.
In other words, it’s great for short-term financial obligations and is budget-friendly enough to fit into most families’ financial planning.
Before signing off on a provider or policy, check out our guide to life insurance.
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