How Does 10 Pay Whole Life Insurance Work?
10-pay whole life insurance lasts your entire life, builds cash value, has a fixed cost, and only requires premiums for 10 years. After 10 years, it becomes a paid-up life insurance policy that requires no additional payments.
After reaching the paid-up point, you’ll still be covered for life; the cash value continues to accumulate (though at a slower pace), and if you die, the insurer will pay out the full death benefit.
It’s worth mentioning that a 10-pay whole life plan will cost at least 100% more than a standard whole life policy.
| Policy Features | 10-Pay Whole Life | Standard Whole Life |
|---|---|---|
| How long do payments last | 10 years | Forever |
| Fixed premiums | Yes | Yes |
| How long does coverage last | Forever | Forever |
| Builds cash value | Yes | Yes |
| Can borrow from the cash value at any time | Yes | Yes |
| Pays a cash surrender value upon choosing to cancel the coverage | Yes | Yes |
| Affordability | Very high cost since payments stop after 10 years | Lowest cost since payments are indefinite |
| Sample monthly price for a $25,000 coverage amount for a 55-year-old female | $149 | $64 |
| Death benefit guaranteed never to decrease | Yes | Yes |
| Pays a tax-free cash death benefit | Yes | Yes |
How Much Does A 10-Pay Whole Life Policy Cost?
Below are sample 10-pay whole life insurance quotes for various coverage amounts.
Pros And Cons Of 10-Pay Whole Life Insurance
- Premiums are only required for 10 years.
- Permanent coverage that never ends.
- Builds cash value tax-deferred that you can withdraw anytime.
- Nearly all policies include living benefits. The most common living benefit is an accelerated death benefit riderAccelerated Death Benefit Rider
A free rider that allows the policy owner to access some or all of the death benefit while still alive. The trigger for this rider will be when a doctor diagnoses the insured with a terminal illness and declares that there is a life expectancy of 12 months or less. Whatever amount you "accelerate" will subsequently be deducted from the death benefit payout upon the death of the insured. For example, if you have a $100,000 policy and you accelerate $25,000, the insurer will only pay out the remaining $75,000 when you die., and there are many others. - If the policy is paid off before retirement, that is especially helpful, since you won’t have to make payments during a season of life when your income is reduced.
- Payments are significantly higher than a traditional “life pay” whole life plan.
- Cash value growth slows down after it’s paid up.
- Not many providers offer 10-pay policies.
- Once the policy is in place, you cannot change it to another type of whole life.
- If you cancel the policy, you’re losing much more money than you would have had you bought a standard whole life policy.
- There is an opportunity cost because the higher premium you’re paying each month could be invested elsewhere.
How Does The Cash Value Work In A 10 Pay Life Policy?
Being a type of whole life insurance, 10-pay policies will accumulate cash value over time (generally after two years). Since premiums are much higher than those for traditional whole life plans, the cash value growth during the first 10 years will be rapid.
However, after the policy is paid up, the cash value will continue to grow at a lower rate since you’re no longer making payments. There are two ways the cash value can be utilized:
- Surrender refund: If you formally cancel the policy (called surrendering), the insurer will refund you the cash value that has accrued.
- Loan: You can take a loan from the cash value and spend that money as you see fit. Policy loans do not have to be paid back. However, outstanding policy loans usually reduce the death benefit.
10 Pay Whole Life Vs 10 Pay Vs Single Premium
If you’re seeking a limited-pay life insurance policy, 10-pay is not your only option. Some companies offer 20-pay whole life policies or single premium whole life plans.
| Policy Features | 20-Pay Whole Life | 10-Pay Whole Life | Single Premium Whole Life |
|---|---|---|---|
| Coverage length | Forever | Forever | Forever |
| Fixed premiums | Yes | Yes | Yes |
| How long payments last | 20 years | 10 years | One large lump sum payment |
| Affordability | Very high cost | High cost | Highest cost |
| Builds cash value | Yes | Yes | Yes |
| Policy loans | Yes | Yes | Yes |
| Potential for dividends | Yes | Yes | Yes |
10 Pay-Whole Life Policy Cost Vs 20-Pay & Standard Whole Life
Below are sample $100,000 life insurance rates comparing the costs of 10-pay, 20-pay, and standard whole life insurance policies.
When Is A 10-Pay Life Insurance Policy Worth Buying?
A 10-pay whole life insurance policy is a unique type of life insurance offering lifelong coverage with limited payments. But it may not be for everyone, given its high cost. Here are the most common circumstances when a 10-pay life insurance policy is a good option:
- Generational gift: If you want a life insurance policy as a gift to your loved ones, a 10-pay policy is ideal. Once paid up, you can rest easy knowing your budget will never force you to cancel the coverage.
- Life insurance for a child: People seeking life insurance for a child should opt for a 10-pay option when it’s available. That way, the parent or grandparent buying the policy for the child can pay it off, ensuring the child will have coverage for life without having to pay for it.
- Pre-retirement: Paid-up policies are highly valuable for those in retirement. That’s because in retirement, your income is lower. Not having to make payments on the policy during this time (assuming it’s paid up by then) helps your reduced budget.
- Final expenses: Should you need a final expense insurance policy to cover your end-of-life expenses, a 10-pay plan is perfect. Once paid up, you’ll have permanent peace of mind knowing the coverage will be there to cover your final expenses, so your family does not have to.
- Minimize long-term payments: Many people dislike long-term payments and prefer to avoid them when possible. If that’s your position, 10-pay is great since the payments only last 10 years rather than your entire life.
- Higher disposable income: 10-pay whole life policies are very costly. While the benefits of a paid-up policy are great, 10-pay plans are only feasible for those with a decent disposable income to afford the higher premiums.
Frequently Asked Questions
With a 10-pay life insurance policy, should you die before the 10 years, the insurer will simply pay out the full death benefit.
When you cancel a life insurance policy that has cash value (which a 10-pay policy does have), you don’t get all your premiums back. However, you will receive the surrender value, which will be equivalent to the policy’s cash value at the time of cancellation.
The question of term vs. whole life, and which is best, is impossible to answer with a simple yes or no. Term life insurance is best for temporary needs (such as a mortgage or income replacement). In contrast, whole life is best for permanent needs (such as final expenses or estate planning). If you need permanent coverage and have the discretionary income to afford a 10-pay whole life policy, it’s superior to a traditional whole life plan. However, if your budget is such that a 10-pay policy is too costly, opt for a traditional whole life policy, as the payments would be substantially lower.
After your policy becomes paid-up, insurers will not allow you to contribute more money to increase the death benefit or cash value. After 10 years, payments permanently stop, and the coverage remains in force forever.
- Nationally licensed life insurance agent with over 16 years of experience.
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Anthony Martin is a nationally licensed insurance expert with over 16 years of experience and has personally served over 10,000 clients with their life insurance needs. He frequently authors entrepreneurial and life insurance content for Forbes, Inc.com, Newsweek, Kiplinger, and Entreprenuer.com. Anthony has been consulted as an expert life insurance source for dozens of high-profile websites such as Forbes, Bankrate, Reuters, Fox Business, CNBC, Investopedia, Insurance.com, Yahoo Finance, and many more.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
