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Key Takeaways
- Short-term life insurance provides coverage for a brief period, typically a year. Some find it helpful during transitional periods, such as during a job change.
- Applicants can typically choose from temporary life insurance, nonrenewable life insurance or annual renewable life insurance when selecting a short-term life insurance policy.
- The cost of short-term life insurance depends on a range of factors, including your age, gender, health, lifestyle and coverage amount.
Short-term life insurance is a policy that is in effect for a short period of time, typically a year. This contrasts with regular term life insurance, which typically covers anywhere from 10 to 30 years.
Short-term life insurance often operates as a stopgap to retain coverage during a brief time period, such as a job change, while making lifestyle changes such as quitting smoking, or while waiting for approval on a traditional life insurance policy.
Are There Different Types of Short-Term Life Insurance?
Consumers can typically select between three common types of short-term life insurance.
- Temporary life insurance: This is typically offered by the insurance company when applicants are awaiting approval on a traditional life insurance policy.
- Nonrenewable life insurance: This short-term life insurance expires when the one-year term is up. Consumers must purchase a new policy to continue coverage.
- Annual renewable life insurance: This one-year term life insurance policy includes the option to renew at the end of the period.
Short-term life insurance works much like a term life insurance policy does, just with a shorter coverage period.
Applicants purchase a policy, pay premiums, and if they die while the policy is in effect, the insurer pays a death benefit to the beneficiaries. Some key differences to keep in mind include:
- Policy term: Short-term life insurance typically lasts one year or less. Meanwhile, term insurance policies could remain in effect for 30 years. Permanent life insurance policies last for the insured’s lifetime as long as premium payments are made.
- Premium amount: For short-term life insurance policies, premiums usually cost less than they do for other types of life insurance. But if you choose to renew the policy, the premiums will typically increase, potentially making the policies more expensive than a longer-term alternative.
- Option to renew: Some short-term policies offer the option to renew coverage. If you think you may need to renew your policy when it expires, confirm that the option is available before signing on.
- Streamlined underwriting requirements: The underwriting process for a short-term life insurance policy may be shorter than the process for regular life insurance. Short-term life insurance policies often don’t require a medical exam or extensive health records for approval.
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Short-term life insurance may be suitable for individuals seeking to fill coverage gaps during a transition period. Here are common scenarios:
- Job change: You had life insurance coverage through an employer and left that job. In this case, short-term life insurance can offer coverage until you land a new job that includes life insurance.
- Lifestyle changes: You are making lifestyle changes such as quitting smoking or losing weight. In this situation, you may delay purchasing regular life insurance because the premiums are expensive. Short-term life insurance may provide a more affordable coverage option until you’re ready to apply for traditional life insurance.
- Awaiting approval elsewhere: You are awaiting approval on a traditional life insurance policy to take effect or be approved. In this situation, short-term life insurance could protect your beneficiaries if you die during the waiting period.
- Debt payoff: You are planning to repay a debt soon. In this situation, a short-term life insurance policy could provide funds for your family if you die before the loan is repaid.
The cost of short-term life insurance depends on a range of factors, including your age, gender, health, lifestyle and coverage amount.
- Age: Younger applicants typically pay lower premiums.
- Gender: Women typically pay less for life insurance because their average life expectancy is longer.
- Health: Healthy applicants can often score lower premiums than those with preexisting conditions. Smokers also may pay higher premiums than nonsmokers.
- Coverage amount: The more coverage you buy, the more the premiums will cost.
- Occupation and hobbies: Applicants who work in high-risk jobs or participate in high-risk activities such as skydiving may pay higher rates.
Expect the premiums to increase each year you renew if you opt for annual renewable short-term life insurance. Similarly, rates could increase if your short-term life insurance policy cannot be renewed and you must purchase a new policy.
- Determine how much coverage you need.
- Consider which type of short-term policy you prefer.
- Shop for the most affordable policy. This should include checking with at least three different life insurance companies and comparing policy terms to find one that meets your needs. Determine whether the policy can be renewed or converted to a traditional life insurance policy when the term expires.
- Read customer reviews and request referrals.
- Fill out an application for the policy, including selecting beneficiaries for the death benefit.
- Answer health questions and submit to a medical exam if necessary.
- Sign the paperwork and pay the policy premiums to put the policy into effect.
If the policy has a renewal option, you may not need to undergo the application process again.
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Short-term life insurance is the same as term life insurance in that they work in the same manner. You purchase a policy, keep the premiums paid, and if you die within the insurance period the insurer pays the death benefits to your beneficiaries. The primary difference is the length of the term.
Annually renewable life insurance typically is a one-year policy, while term policies cover longer terms typically between 10 and 30 years. Temporary life insurance policies can be much shorter in duration. Also, short-term life insurance policies may not offer high coverage amounts like term life insurance policies.
Traditional term life insurance policies often include provisions that allow you to convert to a whole life insurance policy even while the policy is still in effect. With short-term life insurance policies, it may be possible to convert the policy to a longer term beyond one year or even convert to a whole life policy after a waiting period.
However, this option varies from policy to policy and insurance company to insurance company. Therefore, if you want the option to convert a short-term life insurance policy, ask the insurance company for exact details on doing so.
Every insurance company treats short-term policies in their own way. That means some may offer riders on short-term policies, such as a rider that allows the policyholder to convert the policy to whole life insurance.
On the flip side, some companies may not offer any riders on a short-term policy due to its short duration. When researching short-term life insurance policies, ask the insurance company what, if any, riders are available on the policy and the cost for each.
