Short-term life insurance
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Short-term life insurance typically provides a temporary life insurance solution with coverage lasting for a year or less. This may be used as a tool to fill a space in time when you want to provide beneficiaries with benefits, but you don’t have a long-term life insurance policy in place. For example, you might explore short-term life insurance while finalizing a long-term life insurance policy or if you are in between jobs that offer life insurance benefits. Although the coverage options may not be as robust as long-term life insurance, short-term life insurance may be an effective stop-gap solution.
What is short-term life insurance?
There are two main types of life insurance policies: term and permanent. Short-term life insurance is a type of term policy designed to cover individuals for a short period of time, often less than a year. These policies are commonly used to eliminate temporary gaps in coverage, so you aren’t without the financial security provided by a life insurance policy.
Types of short-term life insurance
Before you decide to purchase a short-term life insurance policy, you may want to understand the different types of short-term policies available. Depending on your individual needs, you may prefer a temporary life insurance policy or an annual renewable policy.
Temporary life insurance
Temporary life insurance is offered on the front end 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 short-term life insurance plans that must be renewed each year or dropped. 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. Rather than locking in a level premium for 10 years (or more), an annual renewable policy premium will increase each year as it renews. While this may benefit someone who wants coverage now, it may not be the most affordable option for someone who wants coverage for more than a year.
Is short-term insurance right for me?
The first thing to remember is that short-term life insurance is meant to deal with coverage gaps during transitions and may not be the optimal solution for a family needing expansive life insurance coverage. That said, there are some situations where short-term life insurance might make sense.
- Covering a short-term debt: If you’re working to pay off debt, a short-term life insurance policy may provide peace of mind until it’s paid in full. If you pass away during that period of time, your beneficiary will receive the death benefit and could pay off your debt.
- If you are between jobs: If your life insurance is tied to your employment, you may need short-term life insurance until you’re eligible for a group policy with your new employer. Even if you are starting work with a new company that offers life insurance as part of its employment benefits package, there may be a waiting period in which you need to work for your employer a certain amount of time before benefits become active.
- Working a dangerous temporary job: The riskier your job, the more you might pay for life insurance. If you’re working a dangerous job temporarily, you might get short-term life insurance and then apply for a long-term policy once the job is over.
- Temporary life changes: Maybe you just got divorced and have to purchase life insurance. Or, perhaps you have a temporary life change such as working temporarily in a riskier environment (overseas mission trip, for example). A short-term life insurance policy may be able to cover you until your temporary life change has resolved and you can get the traditional life insurance policy you want.
- Improving your health and lifestyle: Your weight, smoking status and general health are all considered by life insurers when determining your premium. If you are working on improving your health, a temporary policy might be able to provide coverage until you’re ready to apply for a longer term life insurance policy. Just remember that life insurance is typically more affordable when you’re young, so waiting too long to apply for a policy may offset the savings you reap by improving your health.
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. If you’re ready for a long-term policy now, you might consider a term or permanent policy. Both of these policy types are available from many of the best life insurance companies.
Although short-term or annual renewable policies are technically considered term life insurance policies, more standard term policies offer coverage for a longer period of time. Term life policies typically offer relatively cheap premiums compared to permanent life insurance, as a payout is less likely to be incurred. Common term lengths range from 10 to 30 years. This may be worth considering if you want a more affordable policy type or if you only need coverage for a set period of time, such as when your children are young or while you pay off your mortgage.
As the name suggests, permanent life insurance policies remain in effect until the policyholder dies as long as premiums are paid. There are different types of permanent policies, such as whole and universal life, and some of these policies come with a cash value component in the form of an investment portfolio. Permanent life insurance may be a good option for individuals who know they want life insurance for the rest of their life. Speaking with a licensed insurance agent may help you identify which type of life insurance policy could be best for your needs.
Frequently asked questions
The best life insurance policy may look different for everyone. To decide which type of life insurance policy fits you best, you may want to start by determining your life insurance needs. Are they short-term needs, like a car loan or mortgage, or are they long-term needs, like paying for funeral expenses? Life insurance premiums factor in things like your age, tobacco status, gender and health, so these factors may also help determine which life insurance policy best fits your budget and coverage needs.
Life insurance is risk-based, so the premium that you are quoted may differ greatly based on your customer profile. Factors that might affect your rate include your occupation, your age, your health and your hobbies. It’s worth noting that life insurance quotes do not vary as much from company to company as home or auto insurance, so you will likely see similar rates across providers for the same policy and coverage types.
Short-term life insurance may be worth it if you need temporary coverage. However, this policy type is typically more expensive than other life insurance plans if you plan to extend coverage past a year. You may want to consider what your life insurance needs are and speak to a licensed insurance agent to decide if short-term life insurance is worth it for you.