10 Year Term Life Insurance: What It Is & How It Works?

No one likes to think about the possibility of eventualities, but it's important to be prepared for them just in case. Planning for possible shortcomings is like packing an umbrella when leaving the house - even if it's a sunny day.

If your family is financially dependent on you, and you pass away unexpectedly, they will be left in a financial bind. You have a responsibility to make sure that your loved ones have a good financial cushion to fall back on - in your absence. Having a backup plan will ensure that no matter what happens, your loved ones are always taken care of. Term life insurance does just that. Its purpose is to make sure that their dreams are fulfilled and their standard of living is maintained - even if you are not around.

The next crucial step is to determine how long the policy should be in effect. The main objective of term life insurance is to provide financial security for your family until they become self-sufficient, so the policy period should be long enough to accomplish that goal.

While there are various term life insurance policies with varied policy terms, we'll focus on 10 year term life insurance in this article.

What Is Term Life Insurance?

Term life insurance offers financial protection to your loved ones against life’s uncertainties. It is an agreement between you and the insurer wherein you need to pay stipulated premiums for a certain period of time in exchange for which the insurer pays your family a sum of money - in case you pass away during the policy period. The claim amount can help them fulfil their financial goals, meet everyday expenses, settle existing loans and liabilities, pay for your child's education, etc.

What Is 10 Year Term Life Insurance?

As the name suggests, it is a term life insurance policy with a duration of 10 years. Your coverage will last for 10 years.

How Does A 10 Year Term Life Insurance Policy Work?

You buy the policy for a period of 10 years. Depending on your preferences, you customise the policy and choose the sum assured based on your budget and financial goals.

Say you have taken a home loan that needs to be paid off within 10 years and want to make sure the repayment burden doesn't fall on your family and also want to help your loved ones manage expenses without your income - if you are not around anymore. In that case, you can opt for an appropriate sum assured that can take care of both these objectives.

And, if you pass away during the policy period of 10 years, your loved ones can use the claim amount to cover any expenses, including utility bills, groceries, education expenses or the outstanding home loan and any other debts.

What Happens After 10 years?

The 10 year term life insurance works like regular term life insurance. So, once the 10-year policy period gets over, the plan terminates. In the event that you outlive your policy, you will not receive anything from the policy. Hence, there is no maturity benefit.

Example: Sonal, 50, buys a 10 year term life insurance policy with a sum assured of Rs. 20 lakhs. She has to pay all her premiums over the 10-year period. Also, Sonal chooses the lump sum payout option and appoints her spouse, Raj as the nominee. Let’s see how Sonal’s policy will pay out –

➔ If Sonal passes away in the middle of the policy period,
Raj (Sonal's nominee) will receive a claim of Rs. 20 lakhs from the insurance company. As Sonal opted for a lump sum claim payout, the claim amount will be paid to her spouse in one go.

➔ If Sonal survives the policy period,
Her policy will terminate and she will not receive anything.

However, if you wish to get some sort of return at the end of the policy period, you can buy term plan with the return of premium option . With this option, the premiums you have paid (minus taxes) throughout the years are refunded to you - if you survive the policy period. The return of premium option can be chosen only at the time of policy purchase.

Who Should Buy 10 Year Term Life Insurance?

A 10 year term life insurance policy could be worth it if you only need coverage for a short period. Consider this policy tenure if the financial obligations you want to cover have a short duration.

You should choose this plan if any of the following scenarios apply to you -

➔ If you are retiring within 10 years, in which case a term life insurance policy becomes much less important once you’re no longer supporting a family with your income. If your children are financially independent and your spouse could live comfortably off savings and retirement income, etc.

➔ If any loan taken by you will need to be paid off in the next ten years and if you pass away, your spouse or other dependant family members will need the claim amount to settle the pending loan.

For example, Madhav, 35, lives with his wife. He owes Rs 20 lakhs on a home loan that has only 10 years left. To ensure the burden of repayment of the loan doesn’t fall on his wife’s shoulders should something happen to him, he can buy a term plan with a duration of 10 years.

➔ If you are a parent of school-aged children, you can purchase term life insurance to cover your children's education expenses - so that they are financially protected in case of your untimely demise.

For example, Mahesh, a 40-year-old single father, lives with his 10-year-old daughter. He doesn’t have any loans or liabilities. His primary goal is to accumulate enough funds for his child's schooling and college education. The next 10 years will be crucial for his daughter, so he will need a substantial sum of money. Mahesh decides to purchase 10 year term life insurance with a sum assured of Rs 20 lakhs so that even if he passes away during the 10-year policy period, the claim amount will take care of his daughter's education expenses.

➔ If you have a college-going child who’ll be ready to get married within 10 years, you can use this policy proceeds to save for their wedding. And, in case you pass away while the policy is active, the claim amount will help your family cover the costs associated with the wedding.

➔ If you think you can create enough wealth in 10 years that will last a lifetime, you can buy a term plan for a tenure of 10 years to secure your family. The claim amount can cover their short as well as long term goals as well as take care of all their financial needs - in case you pass away in the period of 10 years.

Wrapping up!

So, this is all about 10 year term life insurance. If you believe that the 10-year policy duration is sufficient, then you can go ahead with it. However, before taking any decision, take some time and understand the terms and conditions of the policy - so you don't run into any problems later on.