The thought of passing away is obviously not a pleasant one. Many people, however, are less concerned with their own death than with the possibility of leaving their surviving loved ones with hardship. Aside from the emotional devastation associated with losing a loved one, there is also the possibility for financial hardship.
A 10 year term life insurance policy is one of those tools which can help your family hedge against disasters.
These can be one-time expenses, such as the cost of a funeral. These hardships can also be on-going. If the primary provider for the family dies, the survivors can be faced with mounting bills. If you pass away, you want to leave behind financial security for your surviving family.
Life insurance is often an excellent solution. If you’re unfamiliar with all the ins and outs of life insurance policies, don’t worry. We’ve got you covered with our complete guide to term life insurance. Below we’ll be discussing a 10 year term, which is one of the most popular policies for people of practically any age.
How 10 Year Term Life Insurance Policies Work
Most types of life insurance policies are term policies. These are a type of policy with a set length where benefits can be awarded without increasing rates. A 10 year term policy remains in effect for 10 years after the date of purchase, and both the death benefit and price go unchanged. The most common types of term policies are for 10, 20 and 30 year terms, though you can get annually renewable term policies, too.
First we’ll discuss some brief differences between term and whole, as there policies called 10-pay whole life policies which act very different than traditional term.
The Difference Between Term Life and Whole Life Policies
Term and whole life policies are the two major categories of life insurance. They are used for different purposes:
Whole life insurance provides death benefits, helps establish long-term financial resources for your family and generally has no time limit on use.
Term life policies have a window where benefits are paid out, but have a steep cost increase at some future point. The amount of benefits and the time when they’ll be paid out are flexible based on individual needs, but only arranged at the time of purchase.
A 10 year term life insurance policy is popular because one decade is a reasonable amount of time to plan for. Unlike the next 20 or 30 years, most people can accurately determine their family’s financial needs, at least somewhat, for the next 10 years.
This allows you to purchase enough life insurance to pay for funeral expenses as well as address any debts you might have.
The idea is to avoid saddling your loved ones with your expenses, such as funeral expenses, credit card debt, mortgages and more. In addition, it can replace your income for several years, allowing your family to continue their current lifestyle, or buy time in making adjustments. During a time of loss, your family will certainly appreciate any financial relief a policy can provide.
How Benefits from a 10 Year Policy are Paid Out
Once the policy is approved and “in force,” the policy holder is then covered for the next 120 months, so long as they make their payments on time. If the policy holder passes away, their beneficiaries receive death benefits.
Beneficiaries can be family, a spouse or basically anyone else named by the policy holder. The benefits they receive are tax free.
A term policy will have some exceptions to cause of death. Generally, however, most deaths which are the result of an accident or a natural health issue will be covered. Suicide, for example, if it occurred within the first few policy years, would probably not be a circumstance where a carrier will pay.
What if the Term Expires?
Well, first, consider this good news. If the policy expires, it means you, the policy holder, are still alive and hopefully in good health. Many people consider insurance, especially life policies bought at a young age, as a “waste of money.” That’s usually not the case.
A policy you have and don’t need is often much better than a policy you need and don’t have. This is true even if you’re significantly younger than 78, which is the average life expectancy of a US citizen.
Term policies simply expire at their respective deadline, or otherwise drastically increase in premiums which usually “bump” a person out due to affordability. If you no longer want coverage, no action is required once the policy finishes. However, if you want to continue coverage, you’ll have to pay the higher rates, convert it to a permanent policy, or apply and purchase a new policy.
When purchasing a new policy, you’ll have to buy one at current market rates. This is a reason why some people prefer a 20 or 30 year term policy. They’re able to lock in low rates and beat inflation over the long haul. Of course, the longer the term, the more the policy costs. This is why a 10 year term is the most popular type of policy.
The cost is affordable and the time period provides enough coverage to help with an accidental death.
How Much Coverage Should You Buy?
There is no one right answer here. The amount of coverage depends on your family’s needs. Death benefits are commonly used for the following situations:
- Benefits are used to pay off existing debts, such as credit card debt.
- Benefits are used for funeral arrangements.
- Benefits are used to purchase an annuity to provide income for the surviving family.
- Benefits are used to provide for a surviving child’s college education.
The benefits which work best for you will depend on your needs for your family or business. If you have a spouse or other family member able to work, you might only need to provide for short-term financial relief until they can find a job (or wish to return after taking time off).
If you have children, benefits have a different purpose. You’ll want to provide financial security while they grow into adulthood. Providing for college is also an important benefit which gives peace of mind to many parents.
How Do I Obtain a 10 Year Term Life Insurance Policy?
Don’t be afraid to shop around. You’ll find different providers often have very different prices for what are, in essence, very similar policies. For your convenience, we quote as many as 40 or more carriers, showing you each company and their rates in direct comparison.
Rates are determined by a variety of individual factors. The two most important are your age and your gender. Beyond that, your medical history will also be evaluated, as well as things like tobacco use or family history.
Your medical history usually consists of a health physical and medical history report from the MIB (Medical Information Bureau). Questions will be about your family’s medical history, any past medical conditions you’ve had and any current health issues you still deal with. You’ll likely be asked specifically if you have cancer, diabetes, depression and high blood pressure. You’ll also be asked about your tobacco and alcohol use.
Don’t worry if you’ve never really thought about life insurance before. Many people put the idea off because they’re young, they don’t have much money or even because they don’t want to consider their own mortality.
Life insurance doesn’t need to be stressful, however. With the proper policy, you can enjoy the peace of mind which comes from knowing your family’s financial future is secured. A 10 year term life insurance contract is often a solid choice for most families both in terms of benefits and cost.