When it comes to purchasing life insurance, choosing the right policy can be overwhelming. Term life insurance policies are often a popular choice because they offer a fixed premium and coverage for a set period of time and since 10-year term life insurance policies tend to have a very attractive price point, we wanted to take a moment and discuss some of the pros and cons of purchasing such a policy so that you don’t find yourself regretting your decision later on down the line.
But before we dive into all the nitty-gritty details of a 10-year term life insurance policy, let’s first take a look at some sample rates from a few of the top-rated life insurance companies you’re likely to encounter while shopping for coverage.
Ok, so now that we’ve had a chance to look at some sample rates, let’s now go over some of the most common questions we get from our clients as well as address some of the most common issues people will can run into when only purchasing a 10-year term life insurance policy early in life.
Questions that we’ll be examining will include:
- Who needs a 10-year term life insurance policy?
- How does one qualify for a 10-year term life insurance policy?
- What happens after I’ve owned my policy for 10 years?
- Examining options when a 10-year term life insurance policy expires.
- Guaranteed renewable term life insurance policies.
So, without further ado, let’s get started!
Who needs a 10-year term life insurance policy?
A 10-year term life insurance policy can be a good option for individuals who have a specific short-term financial obligation or need for coverage. Some examples of people who may benefit from a 10-year term life insurance policy include:
- Young adults who want to lock in low rates while they’re still young and healthy
- Parents with young children who want coverage until their children are grown and financially independent
- Homeowners with a 10-year mortgage who want coverage until their mortgage is paid off
- Business owners who have taken on debt or have short-term obligations that would need to be paid off in the event of their death
- Individuals who have taken out personal loans or have other short-term financial obligations that they want to ensure are covered in the event of their death
Ultimately, whether or not a 10-year term life insurance policy is right for someone depends on their individual financial situation and needs. It’s important to carefully consider your options and work with a reputable insurance agent or financial advisor to determine what type of coverage is best for you.
How To Qualify For These 10 Year Term Life Insurance Rates
The top life insurance companies in the U.S. have various underwriting criteria to determine what health rating an applicant can qualify for.
These life insurance health ratings are multi-factorial, meaning there are a lot of variables that go into determining what health rating an underwriter will assign to an applicant.
Life Insurance Health Ratings include:
- Preferred Best or Preferred Plus
- Standard Plus
- Substandard or Table Rated
- Preferred Tobacco
- Standard Tobacco
There are other variables that an underwriter will consider. For example, dangerous hobbies and occupations are looked at. If you skydive, rock climb, or fly a Cessna, your life insurance health rating will most likely be affected.
Underwriters also give healthy credits for applicants who meet certain health criteria.
For example, people with well controlled blood pressure or great cholesterol ratios, can get a healthy credit that raises their health rating up one or two rate classes, based on each individual company’s underwriting criteria.
What happens after I’ve owned my policy for 10 years?
If you have owned a 10-year term life insurance policy for 10 years and the term has not yet expired, there are a few different options you may have:
- Renew the policy: Some 10-year term life insurance policies can be renewed for an additional term, although the premiums may be higher than they were during the initial term.
- Convert the policy: Some term life insurance policies can be converted to a permanent life insurance policy, such as whole life insurance, without the need for further underwriting. This option may be attractive if you want to continue to have life insurance coverage after the term of the policy expires, but it is generally more expensive than a term life insurance policy.
- Let the policy expire: If you no longer need life insurance coverage or do not want to pay the higher premiums that may be associated with renewing or converting the policy, you may choose to let the policy expire.
Examining options when a 10-year term life insurance policy expires.
As stated above, when a 10-year term life insurance policy expires, an insured will generally have three options: Renew their policy, convert their policy, or allow their policy to expire.
Unfortunately, though, sometimes individuals won’t be able to renew or convert their 10-year term life insurance policy. Or sometimes, they may be able to renew/convert them, but the new price is simply to expensive.
This is why we want to take a moment and discuss the potential “pitfalls” that can occur when an insured chooses to purchase a 10-year term life insurance policy, without thinking about what might happen 10 years from now when that policy expires.
Potential negatives one might encounter when renewing a 10-year term life insurance policy.
Renewing a 10-year term life insurance policy can have its drawbacks. Here are some potential negatives that policyholders may encounter:
- Increased premiums: When renewing a policy, the premiums may increase significantly based on the insured’s age and health status. The cost of premiums may be so high that the policy is no longer affordable.
- Health issues: Renewing a policy requires a medical exam, and if the insured’s health has declined since the policy was first issued, they may not be able to qualify for a new policy or may have to pay higher premiums due to their health status.
- Reduced coverage: Some insurance companies may offer the option to renew a policy with reduced coverage. This means that the death benefit may be lower than the original policy, and the premiums may still be higher.
- Limited options: Insurance companies may offer limited renewal options for policies that have expired. Policyholders may not be able to choose a different term length or may have to renew at a higher premium.
- Time constraints: When renewing a policy, there may be time constraints for submitting renewal paperwork or payment. Failure to renew the policy in time could result in a lapse of coverage.
It’s important to carefully consider these potential negatives when deciding whether to renew a 10-year term life insurance policy.
Potential risks of converting a term life insurance policy into a permanent life insurance policy.
Converting a term life insurance policy into a permanent life insurance policy can provide policyholders with lifetime coverage and other benefits, but it also carries potential risks. Here are some potential risks of converting a term life insurance policy:
- Higher premiums: Converting to a permanent policy can result in higher premiums, as the policyholder will be paying for lifelong coverage and additional benefits, such as a cash value component.
- Increased fees: Permanent policies often come with fees, such as administrative costs and premium loads, which can add up over time and reduce the policy’s overall value.
- Longer commitment: Converting to a permanent policy requires a longer commitment to the policy, which may not be suitable for everyone. The policyholder will need to continue paying premiums for the rest of their life to maintain coverage.
- Limited options: The options for permanent policies may be limited, and the policyholder may not have as much flexibility to customize the policy to their specific needs.
- Risk of lapse: Converting to a permanent policy also increases the risk of a lapse in coverage, as the policyholder may struggle to keep up with the higher premiums or other costs associated with the policy.
It’s important to carefully consider these potential risks before converting a term life insurance policy into a permanent policy.
Guaranteed Renewable Term Life Insurance Policies
The last topic that we wanted to take a moment and briefly discuss is one that is often just briefly mentioned when discussing most term life insurance policies which is a “guaranteed renewable clause” that many term life insurance policies will contain.
And while we are a huge proponent of this benefit to policyholders, it’s important to understand what they are, how they work, and their limitations.
Guaranteed Renewable Term Life Insurance Policy:
A guaranteed renewable term life insurance policy is a type of term life insurance policy that allows the policyholder to renew their coverage at the end of the policy term without the need for a medical examination. The insurer is required to offer the policyholder the option to renew the policy, as long as the policyholder continues to pay premiums on time.
One of the main benefits of a guaranteed renewable term life insurance policy is that it provides the policyholder with long-term protection without the need for ongoing medical underwriting. This can be especially appealing to people who are concerned about the possibility of being denied coverage due to changes in their health status.
However, it’s important to note that while a guaranteed renewable term life insurance policy can offer some security, it is not the same as permanent life insurance. The premiums on a guaranteed renewable term life insurance policy will generally increase each year and will likely increase SIGNIFICANTLY over time.
Which means that…
At the end of your 10-year term life insurance policy, if you still need to own a life insurance policy, and you are not able to qualify for a new term life insurance policy instead of simply utilizing a guaranteed renewable feature to your expiring policy, you will likely need to spend double or more in your current premiums to keep your existing life insurance policy in effect. Additionally, this cost will continue to increase each and every year to the point where you may no longer be able to afford to keep your coverage in place.
It’s true that many term life insurance policies will offer a guaranteed renewable feature to them, if you can’t afford to pay the premium that the insurance company is going to charge you to renew your policy, is it really “renewable” for you?
And there you have it, our breakdown of a typical 10-year term life insurance policy with all of its pros and cons for you to consider. Now, we’ll be the first to admit that we have covered quite a bit here in a very short period of time, the good news is that we’re here to help. Our goal is to help you find the very best coverage for you and your family at the very best price.
So, when you’re ready, give us a call, and let us show you what we can do for you!