Short-term life insurance

Short-term life insurance is typically used to provide a one-year or less life insurance solution. This could be used to fill a gap in time when you want to provide benefits to beneficiaries but don't have a long-term life insurance policy in place. For example, if you are in the process of finalizing a long-term life insurance policy or if you are between jobs that provide life insurance benefits, you may want to look into short-term life insurance. Although the coverage options are not as extensive as those of long-term life insurance, short-term life insurance can be an effective stop-gap measure.

What is short-term life insurance?

Life insurance policies are classified into two types: term and permanent. Short-term life insurance is a type of term policy that is designed to cover individuals for a limited time, usually less than a year. These policies are frequently used to fill temporary gaps in coverage, ensuring that you have the financial security provided by a life insurance policy.

Types of short-term life insurance

Before you decide to buy a short-term life insurance policy, you should be aware of the various types of short-term policies available. You may prefer a temporary life insurance policy or an annual renewable policy depending on your specific needs.

Temporary life insurance

Some long-term life insurance policies include a provision for temporary life insurance. It takes effect immediately and lasts until the primary plan's underwriting is completed. This type of short-term insurance is designed to keep a customer covered while they wait for their traditional life insurance policy to take effect.

Annual renewable life insurance

Annual renewable life insurance policies, as the name suggests, are one-year short-term life insurance policies that must be renewed or dropped each year. Annual renewable plans are classified as term life insurance. Depending on the company, you may be able to request that a term life policy be structured as an annual renewable policy when applying for one. An annual renewable policy's premium will increase each year as it renews, as opposed to locking in a fixed premium for ten years (or more). While this may benefit those who need coverage right away, it may not be the most cost-effective option for those who need coverage for more than a year.

Is short-term insurance right for me?

The first thing to keep in mind is that short-term life insurance is designed to fill coverage gaps during transitions and may not be the best option for a family that requires extensive life insurance coverage. However, there are some circumstances in which short-term life insurance may be appropriate.

• 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 the debt is paid off completely. If you die during that time, your beneficiary will receive the death benefit, which could be used to pay off your debt.
• If you are unemployed: If your life insurance is linked to your job, you may require short-term life insurance until you are eligible for a group policy through your new employer. Even if you are starting a new job with a company that provides life insurance as part of its employee benefits package, there may be a waiting period during which you must work for your employer for a certain amount of time before your benefits become active.
• Working a risky temporary job: The more dangerous your job, the more you may have to pay for life insurance. If you are temporarily employed in a hazardous occupation, you may obtain short-term life insurance and then apply for a long-term policy once the job is completed.
• Temporary life changes: Perhaps you recently divorced and need to purchase life insurance. Perhaps you have a temporary life change, such as working in a more dangerous environment (overseas mission trip, for example). A short-term life insurance policy may be able to cover you until your temporary life change is resolved and you are able to obtain the traditional life insurance policy you desire.
• Improving your health and lifestyle: Life insurers consider your weight, smoking status, and overall health when determining your premium. If you are working to improve your health, a temporary policy may be able to cover you until you are ready to apply for a longer term life insurance policy. Just keep in mind that life insurance is typically more affordable when you're young, so putting off applying for a policy for too long may negate the savings you gain by improving your health.

Alternatives to short-term life insurance

Short-term life insurance is intended to be a sort of life insurance stopgap, not an alternative to long-term life insurance. If you're ready for a long-term policy right now, a term or permanent policy might be a good option. Many of the best life insurance companies offer both of these policy types.

Term life

Although short-term or annual renewable policies are technically term life insurance policies, more traditional term policies provide coverage for a longer period of time. Term life policies typically have lower premiums than permanent life insurance policies because payouts are less likely to occur. Term lengths typically range from 10 to 30 years. This is something to think about if you want a more affordable policy or if you only need coverage for a limited time, such as when your children are young or while you pay off your mortgage.

Permanent life

Permanent life insurance policies, as the name implies, remain in force until the policyholder dies as long as premiums are paid. Permanent policies come in various forms, such as whole and universal life, and some of these policies include a cash value component in the form of an investment portfolio. Individuals who know they want life insurance for the rest of their lives may benefit from permanent life insurance. Speak with a licensed insurance agent to determine which type of life insurance policy is best for you.