Life Insurance 10 Certain: A Decade Of Financial Security

Life insurance is a type of insurance that provides financial protection for loved ones after the policyholder's death. Term life insurance is a type of life insurance that offers coverage for a specified period, such as 10 years, and it does not accumulate cash value. 10-year term life insurance is a cost-effective option for individuals seeking short-term coverage, including parents with growing children, people with short-term debts, and those approaching retirement. Upon expiration, policyholders can renew their coverage, convert to a permanent plan, or purchase a new policy.

What is term life insurance?

Term life insurance is a form of insurance that provides coverage for a set period, typically between 10 and 30 years. It is a contract between the policy owner and the insurance company, where the owner agrees to pay a premium for a specific term, and the insurance company promises to pay a death benefit to the beneficiaries upon the death of the insured. Basic term life insurance lengths are 10, 20, or 30 years, and the premiums remain the same for the entire duration of the policy.

Term life insurance is the simplest and purest form of life insurance. It is a cost-effective option, often more affordable than permanent whole life policies. However, term life policies have no cash value, no payout after the term expires, and no value other than the death benefit. The death benefit is usually income tax-free and can be used by beneficiaries to cover healthcare and funeral costs, consumer debt, mortgage debt, and other expenses.

There are several types of term life insurance policies, including fixed term, increasing term, decreasing term, and annual renewable. Fixed term is the most common type, with static premiums for the duration of the policy. Increasing term allows for a scale-up in the value of the death benefit, while decreasing term reduces the premium payments over time. Annual renewable term life insurance provides coverage on a yearly basis and must be renewed by the policy end date.

When purchasing term life insurance, individuals go through an application process that includes a medical exam and assessment of their occupation, lifestyle, and other factors. The cost of term life insurance is based on the person's age, health, and life expectancy, among other considerations.

Term life insurance is particularly attractive to young people with children, as it provides substantial coverage at a low cost. It can also be suitable for people with growing families, as the coverage can be maintained until their children become self-sufficient. Additionally, term life insurance may be a good option for those who cannot afford or do not want to pay the higher premiums associated with whole life insurance.

How does it differ from permanent life insurance?

Life insurance is a legally binding contract between an insurance company and a policy owner. The insurer guarantees to pay a sum of money to the policy's beneficiaries when the insured person dies. In exchange, the policyholder pays premiums to the insurer during their lifetime.

Term life insurance is a type of life insurance that provides a death benefit for a specified period of time. It guarantees payment of a stated death benefit to the insured's beneficiaries if the insured person dies during the specified term. These policies do not usually feature a savings component.

Permanent life insurance, on the other hand, provides coverage for the full lifetime of the insured person. It combines a death benefit with a savings component that earns interest on a tax-deferred basis. The savings component, or cash value, can be borrowed against or withdrawn by the policyholder during their lifetime.

• Duration of Coverage: Term life insurance provides temporary coverage for a set period, often 10 to 30 years, while permanent life insurance offers lifelong coverage as long as premiums are paid.
• Cost of Premiums: Term life insurance premiums are typically lower than permanent life insurance premiums, which are significantly higher due to the inclusion of a cash value component.
• Renewal Options: Term life insurance policies may offer renewal options, but premiums will increase with each renewal. Permanent life insurance premiums are generally locked in and do not increase over time.
• Savings Component: Term life insurance does not usually include a savings component, whereas permanent life insurance allows policyholders to build cash value over time, which can be accessed for various purposes.
• Suitability: Term life insurance is ideal for those seeking short-term coverage or additional protection during specific times, such as young families or those on a budget. Permanent life insurance is suitable for individuals needing long-term financial protection, creating an inheritance for heirs, or seeking a tax-advantaged way to save for future expenses.

Who should get a 10-year term life insurance policy?

A 10-year term life insurance policy is ideal for people who want coverage for a limited period of time. Here are some scenarios in which a 10-year term life insurance policy makes sense:

Parents of growing children

10-year term life insurance can be a good option to help protect your children as they grow. Premiums are typically low, and if you pass away, your partner can use the death benefit to help with loss of income, pay off your debts, and pay for your children’s education. Then, the policy expires once your children leave the house. That way, you can stop paying premiums when you no longer need the policy.

People with short-term debts

If you pass away with debt, your estate may be used to pay those debts off. This can leave less for your heirs. As a result, people who take on long-term debt may get a 10-year term life insurance policy. Beneficiaries can use the death benefit to help pay off the debt if the policyholder passes away, allowing them to keep more wealth in the family. Plus, they can use the remaining death benefit amount however they please.

People who want reasonably priced coverage that fits most budgets

Term life insurance plans typically cost less than permanent life insurance. Additionally, 10-year term life insurance’s short-term length makes it one of the lowest-cost term life insurance options. Therefore, people who want less expensive coverage may want to consider this type of plan.

People who are retiring soon

People approaching retirement may still have dependents that rely on their income or debts to pay off, such as a mortgage. A 10-year term life insurance policy can help protect their beneficiaries if they pass away early. Furthermore, loved ones can use some of the death benefit proceeds to help pay for the policyholder’s funeral, travel expenses to the funeral, and other end-of-life costs.

People in their 50s

A 50-year-old may want a 10-year term policy to cover the rest of their working years before they retire.

Couples starting a family

A 10-year term life insurance policy can ensure the caregiver has an income if the working parent dies.

What happens when a 10-year term life insurance policy ends?

When a 10-year term life insurance policy ends, the coverage ends. This means that if the insured person passes away after the policy ends, their beneficiaries won't receive a death benefit. For example, if a policyholder took out a 10-year term life insurance policy on January 1, 2023, it would expire on January 1, 2033, and the coverage would end.

If you have a 10-year term life insurance policy that is expiring soon, there are a few options to continue coverage:

• Many term life insurance policies come with renewal riders, which let you renew your policy to extend coverage without taking a new medical exam. However, premiums will increase since you'll be older than when you first got the policy. When you renew a 10-year term life insurance policy, you will get the same term length of 10 years.
• Some policyholders may decide they want lifelong coverage when their term life insurance ends. If your 10-year term life insurance policy has a conversion rider, you can convert it to a permanent life plan with no medical exam. Additionally, a permanent plan gives you access to a cash value growth component. Every time you pay premiums, your insurer puts funds into your cash value, where it grows tax-deferred based on the policy type. For example, whole life insurance cash value grows at a fixed, guaranteed rate. You can then borrow or withdraw from your cash value when you accumulate enough. Your insurer will pay your cash value to you minus surrender charges if you surrender the policy. Keep in mind that premiums may increase significantly since permanent life insurance policies cost more than term life insurance, and you'll be older.
• If your policy has already expired, or you don't have access to a renewal or conversion rider, you can apply for a new term or permanent life insurance policy. However, a new traditional life insurance policy may require a new medical exam. Alternatively, you can get a no-exam policy, like final expense insurance, to skip the medical exam. Final expense insurance is designed to help cover end-of-life costs, such as funeral expenses and medical bills. As a result, these plans typically have small death benefits, lower premiums, lifelong coverage, and cash value.

What are the pros and cons of term life insurance?

Term life insurance is a type of life insurance that provides a death benefit for a specified period of time, usually 10, 15, 20, or 30 years. It is designed to offer substantial coverage at a low cost and is ideal for people who want to provide financial security for their loved ones in the event of their death. Here are some of the pros and cons of term life insurance:

Pros:

• Affordability: Term life insurance is typically less expensive than permanent life insurance policies such as whole life or universal life. It is a good option for those who cannot afford the much higher monthly premiums associated with whole life insurance.
• Simplicity: Term life insurance is simpler to understand than permanent life insurance as it lacks the investment and savings components.
• Flexibility: Term life insurance offers flexible term lengths, allowing individuals to choose coverage periods that fit their needs, such as 10, 20, or 30 years.
• No long-term commitment: With term life insurance, there is no long-term commitment. Individuals can choose to renew their policy, convert it to a permanent policy, or allow it to lapse at the end of the term.

Cons:

• No cash value: Term life insurance premiums only go towards coverage, and there is no savings or investment component. As a result, individuals cannot borrow or withdraw from the policy's cash value.
• Increasing premiums: If an individual renews their term life insurance policy, the premiums will likely increase as their age and health conditions change.
• Limited benefits: Term life insurance provides no benefits if the insured person outlives the policy term. There is no payout unless an optional return of premium rider is purchased.

Term life insurance is suitable for those who want affordable and flexible coverage for a specific period. However, it is important to consider the limitations, such as the lack of cash value and increasing premiums with renewals.

Frequently asked questions