When you buy term life insurance, you can get coverage for 30 years or more. Permanent life insurance offers coverage for a lifetime. But with a sometimes lengthy underwriting process, you could have a gap in coverage between buying the policy and coverage being effective. Or, maybe you are in between jobs or have another reason why short-term life insurance would be beneficial.

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A short-term life insurance policy is temporary life insurance, which usually lasts a year or less. It can help protect your loved ones financially until your benefits kick in at your new job or while you wait for underwriting to process your life insurance application. While it does have some limitations, like maximum coverage amounts, short-term life may be a good solution in certain situations.

What is short-term life insurance?

There are two types of life insurance policies: a temporary or permanent policy. Short-term life insurance is a type of 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. A common example is when you’re waiting for a long-term life insurance policy to become active, or if you are between jobs. Temporary life insurance and annual renewable life insurance are two common types of short-term life insurance that are options if these situations arise.

Types of short-term life insurance

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, costs increase with time.

When is short-term life insurance a good idea?

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.

  • Covering a short-term debt: If you’re working to pay off debt, a short-term life insurance policy can 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 can pay off your debt. If not, then the policy will end and have served its purpose.
  • 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 policy with your new employer.
  • 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 temporary life changes such as being between jobs or expect to be temporarily in a riskier environment (overseas mission trip, for example). A short-term life insurance policy can cover you until your temporary life change has resolved and you can get a traditional life insurance policy.
  • Improving your health and lifestyle: Your height, weight, smoking status and general health are all considered by life insurers. If you are working on losing weight, quitting smoking or doing other things to improve your health, a temporary policy can provide coverage until you’re ready to apply for a longer term life insurance policy in better health. For a young, healthy adult looking for the lowest possible budget option, an annual renewable policy may be a good short-term fit.

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 other ways to deal with these coverage gaps aside from just having a short-term life insurance policy.

Term life

Although short-term or annual renewable policies are technically considered term life insurance policies, you can typically choose to extend the duration of coverage to beyond a single year. Term life policies offer relatively cheap premiums compared to other life insurance types as a payout is less likely to be incurred. Depending on your circumstances, you may benefit from extending your short-term policy into a decade or longer to suit your needs.

Permanent life

Whole or universal life insurance can provide coverage for the entirety of an individual’s life in most circumstances, as long as premiums are paid. 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.

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