10 year term life insurance is on the surface, a straightforward product. It’s a life insurance policy that lasts for 10 year – or so it seems. But in fact, that’s not how most 10 year term life insurance policies work.

A typical 10 year term policy is actually life insurance up to age 70 or 80. It’s premiums however, are level and increasing every 10 years. So premiums remain the same for 10 years, then increase and are level for another 10 years, and so on until the policy expires.

The premium after year 10 are called renewal premiums, and the policy is said to renew at that time. At that time, renewal premiums increase drastically, so most people cancel after the first 10 years (which leads to the impression that these policies are for only 10 years). You should know that if you don’t cancel your 10 year term prior to renewal, that the company will simply increase your premiums to the new rate and start withdrawing that amount from your account.

Uses for 10 year term

Because the premiums are only competitive for 10 years, 10 year term suitable primarily for life insurance needs for about that duration or shorter. If you need coverage longer than 10 years, you should be looking at a policy with a longer term (such as 20 year term or 30 year term). A typical example would be someone in their 50’s looking for insurance until close to retirement. It’s also often used for business purposes, as business plans rarely last longer than 10 years.

If you’re looking for a shorter term, you’ll still likely end up with a 10 year term though, as there are no longer any shorter terms commonly available in Canada.

10 year term is also useful for those that want a longer term, but want cheaper premiums in the long term. This strategy requires that you purchase a term 10 now (at cheaper premiums) then at the end of 10 years purchase another policy. The downside to this strategy is that you’re going to need a new term 10 policy in 10 years, which will require a medical exam that you have no guarantee of being able to pass. Thus, this strategy comes with increased risk.