What is 10-Year Level Term Life Insurance?

By Andrea Campbell

  • Overview

    What is 10-Year Level Term Life Insurance?
    A fairly straightforward kind of life insurance is packaged as "term life insurance." Term life is considered a temporary form of protection because the term limit that the policy is valid for---whether 5, 10, 20 or 30 years---is specified in the contract. At the end of that period of time, it just ends.
  • Function

    This insurance offers a death benefit to the beneficiary; in other words, whoever is named to receive money when the insured person dies---during the time the policy is in effect---is called the beneficiary (usually a spouse, child or business partner). Since life insurance is to provide financial protection in the event of the insured person's death, term life is a good option for those who want insurance for a limited period of time and on a limited budget. The death benefit pay out can be used for funeral expenses, to pay off debt, or to provide an income for a limited period of time. Some people use it as mortgage insurance; meaning if the insured dies, the funds will be enough to pay off the house, freeing up the spouse from that burden.
  • Features

    One caveat here is that the payments (called "premiums") must be kept up. For if the policy is canceled, or expires before the insured person's death, nothing is payable. Insurance agencies like to say that there are "no living benefits." The best thing about term insurance is that somewhat large amounts of insurance can be bought for a relatively small initial premium. Premiums are generally paid monthly and today, much of that can be done by automatic or electronic withdrawals from bank accounts.

  • Considerations

    Young families often choose term life insurance in the event the breadwinner dies unexpectedly. The term life insurance policy then provides insurance protection during the child-rearing years. Professionals who are just starting out might want term insurance if they have not yet reached their earning potential, because they can afford the payments later, when they might want to buy more expensive permanent insurance.
  • Identification

    Most term insurance policies have two features that can be negotiated called: "renewable" or "convertible." The renewable element means that the policy owner has the right to renew the coverage at the expiration date, without evidence of insurability. For example, if the individual purchases a ten-year term policy when he is age 35, if he renews that same policy ten years later, he will pay a premium based on the age of 45. The convertible feature means the policy owner has the right to convert his policy to a permanent life insurance policy without evidence of insurability. The premium will be based on the person's current age at the time of conversion.
  • Three Basic Types: Level

    Three basic types of term coverage are available: level, increasing or decreasing. No matter the type of coverage chosen, typically the premium is level---the same amount---throughout the term of the policy. Generally, only the amount of the death benefit may fluctuate, depending on the type of term insurance. Level is the most common. As with all level term policies, annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured. Now there are policies where the insured can select a ten-year term policy in which the premium remains the same during the term specified. In order to accomplish this the insurance company overcharges in the earlier years and, in essence, undercharges in the later years.
  • Three Basic Types: Increasing

    Increasing term features level annual premiums with a death benefit that increases each year over the duration of the policy term. The amount of the increase is usually expressed as a specific amount or a percentage of the original amount. Increasing term is often used by insurance companies to fund certain riders, such as a "cost of living" rider. The premium cost is less than level term, but higher than decreasing term coverage.
  • Three Basic Types: Decreasing

    Decreasing term policies feature a level premium and a death benefit that decreases each year over the duration of the policy term. It's commonly used to insure payment of something like a mortgage. Decreasing is usually the least expensive form on the term coverages.
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