What Is 10-Year Term Life Insurance?

A 10-year term life insurance policy provides short-term protection for the policyholder's beneficiaries and most are pretty affordable. But it's not the right choice for everyone. Read on to learn more about how these policies work and who they're a good fit for.

What is a 10-year term life insurance policy?

A 10-year term life insurance policy is a life insurance policy that only covers the policyholder for 10 years from the date of purchase. It's just one of several life insurance terms available from the best life insurance companies.

How does 10-year term life insurance work?

The policyholder pays the insurance company a monthly premium in order to keep the policy in effect. If the policyholder dies at any point during the policy term, the insurance company will pay the agreed-upon death benefit to the policyholder's beneficiaries.

What happens at the end of a 10-year term life insurance policy?

Once a 10-year term life insurance policy is up, the policyholder can choose to end the coverage, renew it for an additional term, or convert it to a permanent life insurance policy. The right move depends on the person's health and financial situation at that time.

What are the benefits of 10-year term life insurance?

Here's a look at some of the key reasons to get a 10-year term life insurance policy.

Pro: Cheaper premiums

Term policies are cheaper than permanent life insurance. That's one reason why Dave Ramsey recommends term life insurance. However, actual costs vary depending on the policyholder's age and health as well as the death benefit they want.

Pro: Simpler policies

Purchasing life insurance without understanding it is one of the top life insurance mistakes. But fortunately, 10-year term life insurance policies aren't as complex as some permanent life insurance policies.

Pro: Guaranteed death benefit

If the policyholder dies during the 10-year policy term, the insurance company will pay a predetermined amount to the policyholder's beneficiaries as long as the policy was in good standing. This can provide a welcome sense of security for family members left behind.

Pro: Good for short-term insurance needs

A 10-year term life insurance policy isn't as much of a long-term commitment as permanent life insurance. It can give policyholders peace of mind while they need it. Then, when they don't need it, they can drop the coverage and hold onto that premium money each month.

Pro: Flexibility to end, renew, or convert policy after term

When a 10-year term life insurance policy is up, most insurers give the policyholder several options. This is less restrictive than permanent life insurance policies.

What are some disadvantages of 10-year term life insurance?

Here are some drawbacks to purchasing a 10-year term life insurance policy:

Con: Rates vary with age and health

Term life insurance rates are generally affordable, but exact costs depend on the person's age and health status. Those who smoke or have other health issues typically pay more as do older adults. That's why most people shouldn't wait to buy life insurance.

Con: No cash value

Permanent life insurance gives policyholders cash value they can borrow against in the future, but 10-year term life insurance doesn't have this option. Beneficiaries only receive money from the policy if the policyholder dies during the term.

Con: No savings component

Term life insurance doesn't enable policyholders to place some of their premiums into a savings or investment account where it could grow to be worth more over time. All the premiums paid go toward keeping the policy in force.

Con: Renewing and converting policies can be costly

While renewing a term life insurance policy and converting it to a permanent life insurance policy are possible, doing so can be expensive. Policyholders with little cash to spare may not be able to afford it.

When is 10-year term life insurance worth it?

Those who meet one or more of the following criteria may want to invest in a 10-year term life insurance policy:

If your age makes qualifying for other policies impossible

Older adults may struggle to find an affordable permanent life insurance policy or a longer term policy. In this case, a 10-year policy can provide the coverage they need for a short period of time. Then, when the term is up, they can reevaluate and see where they're at.

If other life insurance policies have matured

Those who have had a previous term life insurance policy mature may decide they need a little additional coverage. A 10-year policy is a good fit for this because it provides short-term protection at an affordable rate.

If you only need coverage for short-term financial obligations

Those with outstanding mortgages or loans that they expect to pay off within a decade may prefer a short-term life insurance policy instead of a longer term or permanent life insurance policy.

If you're retiring soon

Workers who plan to retire soon may only want life insurance coverage for a short time until they're ready to tap their retirement savings. After that, they may choose to live off their nest eggs rather than paying for insurance.

If you have soon-to-be independent children

Term life insurance is common among parents of minor children, but policyholders with teenage children might prefer a 10-year policy instead of a longer term. Once their children are independent, they may no longer need the insurance coverage.

If you want to save money while you prepare for more permanent coverage

Term life insurance is a more affordable option than permanent life insurance. So it could be a good fit for those who are looking to save money in the short term. Once the 10-year term policy matures, the policyholder can then look into switching to a permanent policy if it makes more sense for them.

10-year term life insurance rates

Here's a closer look at how much 10-year term life insurance costs and which factors affect rates:

How much does 10-year term life insurance cost?

A 10-year term life insurance policy can cost as little as $10 per month or as much as $75 per month. It all depends on the desired coverage level and the applicant's age and health.

Most people under age 50 can expect to spend less than $20 per month for $250,000 of coverage. But the only way to know for sure what a specific individual will pay is to get quotes. Here's a closer look at how to buy life insurance.

What factors affect 10-year term life insurance rates?

The following factors have a significant effect on 10-year term life insurance rates:

Age

Older adults typically pay more for term life insurance than younger adults.

Current health

Individuals with chronic health conditions are more likely to die during their policy term, so these individuals usually pay higher premiums.

Health history

A poor health history is also a red flag to insurers, so they charge these individuals more for 10-year term life insurance.

BMI

A high body-mass index (BMI) can increase a person's risk of a variety of serious health conditions. This is why insurers often charge those with high BMIs more than those with lower BMIs.

Smoking

Smoking increases the risk of lung cancer and other illnesses, so insurers charge smokers more than non-smokers.