Term life insurance is typically purchased for longer periods, such as ten or thirty years. However, depending on the nature of the coverage, a long-term policy may not always be the best choice for you. Short-term life insurance can help in this situation.
Short-term life insurance is a type of term policy that offers coverage for a limited time, usually less than a year. These policies are frequently used to bridge short-term coverage gaps, ensuring the financial security that comes with owning a policy. This article discusses short-term life insurance, including its various types, features, benefits, drawbacks, and pre-purchase considerations.
How Does Short-Term Life Insurance Work
Short-term policies, like all other types of life policies, necessitate premium payments to provide coverage. When you die, your beneficiaries will receive a death benefit as long as the policy is active. There are a few other differences besides the main one, which is the length of the policy.
Duration
The typical duration of a short-term policy is one year, but some can go up to five years. Traditional term life coverage policies also have additional lengths of 10, 15, 20, 25, or 30 years.
Premiums
Permanent life insurance policies typically have lower premiums because they do not include a cash value component. Short-term policies have fixed premiums for the level term, just like traditional term life policies. If your policy is renewable, you should expect a significant increase in premiums at each renewal.
Renewal
Short-term policies cannot be renewed simultaneously. Before you make a purchase, ask if you can renew it if you think you’ll need to when it expires.
Underwriting
Short-term policies typically have less stringent application and approval requirements, so you may not need to provide extensive health information or undergo a medical examination.
Types of Short-Term Life Insurance
Before purchasing a short-term life insurance policy, you should be familiar with the various types of policies available. You may also prefer an annual renewable policy or a temporary life insurance policy, depending on your needs.
Temporary life insurance
Some long-term life insurance policies include a clause for temporary life insurance coverage. It is effective immediately and will remain in place until the main plan’s underwriting is completed. The purpose of this short-term coverage is to protect clients until a traditional life policy is in place.
Annual renewable life insurance
Annual renewable life policies are short-term, one-year policies that must be renewed or dropped annually. Plans that are renewed annually are classified as term coverage. Depending on the provider, you might be able to ask for an annual renewable policy structure when applying for a term life policy.
An annual renewable premium rises with each renewal, as opposed to a fixed premium for ten or more years. This may be enough for those who only need short-term coverage, but it may not be the best option for those who need coverage for more than a year.
How Much Does Short-Term Life Insurance Cost
Short-term life insurance costs are determined by a variety of factors, just like regular life insurance policies. Some examples include:
- Age: The younger you are, the lower your premiums will be.
- Gender: Because men have a shorter average life expectancy, they typically pay more for life insurance.
- Health: If you are in good health, you will likely pay lower premiums. Preexisting conditions may result in higher premiums or denial of an insurance application. Smokers may pay higher premiums than non-smokers.
- Cost: Premiums increase in proportion to the amount of coverage purchased.
- Interests and occupation: Risky hobbies or careers, such as motorsports, rock climbing, and skydiving, may result in higher rates.
Your short-term life policy premiums will increase each year you renew it. Furthermore, your rates may rise if your current short-term life insurance policy cannot be renewed.
Benefits of Short-Term Life Insurance
Short-term life insurance offers several noteworthy advantages.
Adaptability
Your life insurance policy can be customized to last as little as 60 days or as long as several years, depending on the particular scenario you wish to have covered.
Cost-effectiveness
Early on in the policy period, these policies are frequently less expensive than the premiums for longer-term term life coverage. Ensure you aren’t overpaying for the short-term product by carefully comparing your premium costs to those of long-term insurance options. Many short-term policy types can be renewed and, in certain situations, converted to permanent life coverage.
Easy and quick
Short-term life policies are simplified and faster to get approved for, making it easier to obtain coverage than longer-term plans, making it a more convenient option for individuals.
Riders
Certain companies allow riders to be added to a policy for a limited time. Some of the most popular riders include accelerated death benefits and premium waivers. If a policyholder becomes disabled and unable to work, the premium will be paid using the waiver of premium coverage. The policyholder can receive a portion of the death benefit if they are diagnosed with a terminal illness.
Disadvantages of Short-Term Life Insurance
Although having short-term life insurance can be beneficial, there are certain restrictions to take into account.
Renewability
The majority of short-term policies permit some kind of renewal, but not all do. The insurance provider will review your medical history and background to establish the renewal terms, which frequently entail a higher premium.
Flexibility
Certain types of permanent life insurance coverage can be converted from short-term life insurance policies without requiring a new underwriting procedure. This may be a good option if you need long-term coverage. Furthermore, consult with a qualified agent or financial advisor to ensure that short-term life insurance is the best option for your needs.
How to Buy Short-Term Life Insurance
The application process for short-term life insurance is identical to that for regular life insurance.
- Coverage amount: Ensure that the policy provides the same level of coverage you require.
- Coverage duration: Choose a policy that suits your needs, within the duration of one to five years.
- Cost: Choose the choice that provides adequate coverage for the lowest cost.
- Renewals: Determine whether the policy can be renewed and, if so, the maximum number of renewals that are allowed.
You might be able to avoid going through this process if your policy permits renewals. Maybe all you have to do is pay the higher premium. You might need to go through the entire process again if you are unable to renew the policy and would like to purchase another short-term life policy.