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What is short-term life insurance?

Mandy Sleight, on

Published in Home and Consumer News

You might be familiar with permanent or term life insurance. However, short-term life insurance is a type of term plan that offers coverage for up to a year. Although short-term life insurance isn’t a fit for everyone, there are some instances where it makes financial sense.

For instance, short-term insurance might be a viable option if you’re in between jobs and waiting for new employee life insurance benefits to begin. You’ll have the peace of mind of knowing that your beneficiary (or beneficiaries) will receive a death benefit if you were to pass during the covered period.

That being said, while short-term coverage provides a useful function, your coverage options may not be as robust or cost-effective as a typical term or permanent life insurance policy.

What is a short-term life insurance policy?

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 take effect.

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.

Who should buy short-term life insurance?

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 (a certain amount of time you need to work for your employer) 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 — an overseas mission trip, for example — wherein you’re working for a short period in a riskier environment. 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 at the lower rate you’re likely to earn by improving your health. 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 most life insurance companies.

Term life

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 occur before the end of the term. 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.

Permanent life

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. Permanent life insurance may be a good option for individuals who know they want life insurance for the rest of their lives. 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

— What is the best type of life insurance? 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, to potentially help pay off a car loan or mortgage, for example, 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.

— How much does short-term insurance cost? Since life insurance rates are based on multiple factors that differ from person to person, there’s no standard rate for short-term insurance. Your age, health, occupation and more all impact the rate you’re quoted, which may differ from company to company. Every insurer uses its own proprietary algorithms to determine rates, so it can be a good idea to ask for quotes from a range of possible insurers, to see who offers you the cheapest rate.

— Is short-term life insurance worth it? Short-term life insurance may be a good solution 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.

— How quickly can I get term life insurance? When you apply for life insurance, your chosen company goes through a process called underwriting, where they consider all the risk factors you may offer and determine whether they are willing to write you a policy, and if so, how much they will charge. In some cases, the underwriting process can take four to six weeks or even longer, depending on how long it takes to collect medical and other data. Some term policies offer accelerated or even instant underwriting, however, so in certain cases it may be possible to have an active policy within 24 hours of applying.


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