Life insurance can provide a great financial safety net, but sometimes there are gaps in the coverage. Maybe you’re still going through the medical exams and waiting on the insurance company, or perhaps you’re between jobs and could use a short term life insurance policy. Whatever the cause, there are times when you might need a life insurance policy that only covers a small window. This is where short term life insurance can be useful.
Short-term life insurance explained
Short term life insurance is a type of policy designed to cover individuals for small amounts of time, often less than a year. These policies are commonly used to shore up temporary gaps in coverage. A common example is when waiting you’re for a long term life insurance policy to become active. Temporary life and annual renewable life insurance are two common types of short term life insurance that are options when these types of situations arise.
Temporary life insurance
Temporary life insurance is offered on the frontend of some long term life insurance policies. It goes into effect immediately and lasts until the underwriting on the primary plan is complete. This type of short term insurance is meant to keep a customer covered while waiting for a traditional life insurance policy to go into force.
Annual renewable life insurance
As the name implies, annual renewable life insurance policies are one-year plans that must be renewed each year or dropped. Most commonly, annual renewable plans fall within the term life insurance category. When applying for a term life policy, depending on the company, you may be able to request that it be structured as an annual renewable policy.
Benefits of a short-term life insurance policy
If the individual covered by a life insurance policy passes away, their beneficiaries will receive a payout, also known as a death benefit. Often, these policies do not have restrictions on how the payout is to be used. When the policy is created, the customer designates the names of beneficiaries. The size of death benefit is generally chosen when the policy is created, but can grow or shrink over time with some types of policies.
Short term life insurance policies tend to have relatively low premiums compared to longer term life insurance policies. This affordability reflects some of the reduced financial risk that insurance companies take on with these policy types. Due to these plans being so brief, the chance of the policyholder passing away tends to be lower than they are for customers with long term insurance policies.
Fills the gap
The whole point of short term life insurance is to fill a coverage gap until something else happens. Usually, this gap is a short one that only exists while a person seeks more long term life insurance. If someone were to pass away during this gap, a short term life insurance policy might be able to provide their beneficiaries with a death benefit.
Sometimes, your insurance company will offer you a short term life insurance contract if you are in the process of taking out a longer term one. Using these short term plans can help you stay covered while waiting for your medical exam and the underwriting process. It’s generally not required to procure a short term policy while you wait on a longer one, but it’s become increasingly common for companies to offer them.
Who should consider short-term life insurance
The first thing to remember is that short term life insurance is meant to deal with coverage gaps during transitions. That said, there are some clear situations where short term life insurance makes sense. Two of the most common are when switching to a new job or waiting on a long term life insurance policy.
Let’s say you had life insurance through your employer but you’re now changing jobs. Your new employee benefits will also include life insurance, but there’s a two-month window before it goes into effect. This transition and waiting period might be a good time for short term life insurance. You could use that short term policy to keep yourself covered until the main life insurance policy goes into effect.
Waiting on a long term life insurance policy
Even more common, short term life insurance policies are offered by insurance companies to customers who are waiting on a longer term life insurance plan. If you are in the process of applying for a long term life insurance plan, consider asking your agent about short term policies to cover the gap until the primary plan goes in force.
Alternatives to short-term life insurance
Short term life insurance is meant as a sort of stopgap in life insurance, and not as an alternative to long term life insurance. That said, there are some other ways to deal with these coverage gaps.
One popular life insurance type is term life. These plans are full life insurance policies but with a set duration, usually ranging from one year to a few decades. Although these plans are time limited, they can generally be extended. Term life offers relatively cheap premiums compared to other life insurance types. Since these plans can be as short as a year, they can sometimes fill the role of short term life insurance.
Whole or universal life insurance can provide coverage for the entirety of an individual’s life. Some of these policies come with cash value components in the form of an investment portfolio. While these policies may present a small coverage gap on the front end, once established, they remain in effect for as long as the premiums are paid, or until the insured individual passes away.
Frequently asked questions
What is the best life insurance policy?
The best provider and policy can differ between customers. Consider our guide for comparing life insurance companies and rates.
When do I need short term life insurance?
If you’re going to experience a gap in life insurance coverage, such as when switching jobs or waiting for a longer term policy to go into effect, then it might be worth looking into a short term life insurance policy to fill that gap.
Is short term life insurance worth it?
Depending on the situation, short term life insurance can be worth it. However, it is not a viable replacement for longer term life insurance.