Short-Term Life Insurance: Is It Possible?

Short-term life insurance is a type of term life insurance policy that provides coverage for a fixed period, typically a year or less. It is designed to bridge short-lived situations and is often used to fill gaps in coverage while waiting for a long-term policy to take effect or during life transitions. Short-term life insurance policies work similarly to other life insurance policies, with the policyholder paying premiums in exchange for coverage. The main difference lies in the duration, with short-term policies usually lasting a year, while traditional term life policies can range from 10 to 30 years. Short-term life insurance offers flexibility and affordability for those seeking temporary coverage but may become expensive if constantly renewed.

Temporary life insurance

The cost of temporary life insurance is usually based on the initial quote from the insurance company, which will likely reflect the premiums for your final policy. For instance, if you are quoted $30 per month for your coverage, your temporary coverage would cost $30. Temporary life insurance is generally more affordable than permanent life insurance, as it does not build cash value and is in force for a shorter period.

While temporary life insurance can provide peace of mind and ensure your loved ones are protected, it is important to note that it is not always renewable and does not build cash value over time. If you need coverage for a longer period, you may want to consider a traditional term or permanent life insurance policy.

Annual renewable life insurance

Annual renewable term (ART) life insurance is a type of short-term life insurance with an option to renew at the end of each year, but at an increasing rate. ART policies are best used for specific short-term life insurance needs.

ART policies work just like other kinds of term life insurance, except that you have to renew your policy at a higher premium each year. Traditional term life insurance policies usually last 10 to 30 years and have level premiums, meaning they don't change. Annually renewable term insurance is best for people who need short-term coverage or are working to qualify for lower rates for a level term policy.

Annual renewable term life insurance has premiums that increase every year. The younger and healthier you are, the lower your premiums will be. The shorter your term, the lower your premiums will be, too.

ART policies are generally cheaper than other types of coverage during the first few years the policy is active, and you get to decide how many years you keep your policy. ART may be a good option if a traditional policy is out of your budget, or if you only need temporary coverage.

However, for most people, a level term life insurance policy is a better value than an annually renewable one. Over time, you'll pay more for an annually renewable policy than you would for a level term policy with the same coverage. If you get sick, you might become ineligible for the policy. Even if you still qualify, your premiums could become unaffordable.

Annual renewable term life insurance lets you lock in your rate for a year at a time, and the initial low price can be appealing. But the cost will likely rise every year, and you may end up paying more than you would with other types of life insurance.

When to buy short-term life insurance

Short-term life insurance is a good option for those who need coverage for a limited time, such as while paying off a specific debt or starting a new business. Here are some scenarios where buying short-term life insurance may be a good idea:

You're in between jobs:

If you had life insurance through your previous employer, a short-term policy can fill the gap in coverage while you're between jobs or waiting to enrol in a new group policy. This ensures your loved ones remain protected during this transition period.

You want to cover a short-term debt:

A short-term life insurance policy can provide peace of mind if you're working to pay off a debt, such as a personal loan or a mortgage. If you pass away during this period, your beneficiary will receive the death benefit and could use it to pay off the remaining debt.

You're making positive lifestyle changes:

If you're in the process of improving your health, such as quitting smoking, losing weight, or recovering from an illness, a short-term policy can provide temporary coverage. Once you've made these lifestyle changes, you may be eligible for lower rates on a longer-term policy.

You're starting a new business:

If you're launching a new business and have taken out loans, a short-term life insurance policy can be a bridge until your business becomes more financially stable. This ensures that your business-related debts won't become a burden on your loved ones if something happens to you.

You're waiting for long-term life insurance approval:

Some insurers offer temporary life insurance while you're waiting for approval on a traditional long-term policy. This ensures that you have coverage during the underwriting process, which can take several weeks or months.

You're working a dangerous temporary job:

If you're briefly taking on a hazardous job, such as mining or logging, a short-term policy can provide coverage at a lower rate than a long-term policy. Once the job is complete, you can shop for cheaper premiums.

Long-term life insurance policies to consider

When considering long-term life insurance, it is important to evaluate your personal situation, financial circumstances, and future goals. Here are some long-term life insurance policies to consider:

• Traditional long-term life insurance: This type of policy is designed to provide coverage for an extended period, typically ranging from 10 to 30 years. Traditional long-term life insurance policies usually offer fixed premiums throughout the term and may be a good option if you are looking for coverage during a specific period, such as while your children are young or while you pay off your mortgage.
• Whole life insurance: Whole life insurance combines life insurance with an investment component, offering a tax-deferred savings benefit. It is a type of permanent life insurance, which means it remains in effect until the policyholder's death as long as premiums are paid. Whole life insurance can be a good option if you want life insurance coverage for your entire life and are interested in the additional benefits provided by the investment component.
• Universal life insurance: This is another type of permanent life insurance that offers flexible premiums, death benefits, and savings elements. Universal life insurance provides the opportunity to adjust your coverage over time, making it a good choice if you anticipate changes in your financial situation or needs.
• Variable life insurance: This type of permanent life insurance includes investment options, allowing you to allocate your premiums across different investment accounts. Variable life insurance offers the potential for higher returns but also carries more risk. It may be suitable if you are comfortable with investing and want the opportunity to grow your cash value.
• Long-term care insurance: Long-term care insurance is designed to cover the costs of long-term care services, which may include home care, facility care, planning services, and support equipment. This type of insurance is especially useful if you want to avoid the high costs of long-term care, which are typically not covered by standard health insurance. Long-term care insurance can provide financial protection and peace of mind, ensuring you receive the necessary care without depleting your savings.

Types of short-term life insurance

Short-term life insurance is a type of term life insurance policy that provides coverage for a specific period, usually a year or less. While it is not meant to replace traditional long-term life insurance, it can be useful in certain situations. Here are the four most common types of short-term life insurance:

Annual Renewable Term Life Insurance

Annual renewable term life insurance policies provide coverage for one year at a time and can be renewed annually. While premiums increase each year, these policies offer the flexibility to extend coverage if needed. However, they may not be the most cost-effective option for those seeking coverage for more than a year.

One-Year Term Life Insurance

This type of short-term life insurance policy lasts for 12 months and cannot be renewed. If individuals need coverage beyond one year, they must purchase a new policy. Some companies offering one-year term life insurance include Progressive (via Fidelity Life), Brighthouse, and Principal.

Five-Year Term Life Insurance

While most life insurance companies start their term lengths at 10 years, a few offer five-year term life policies. For example, Haven Life provides a five-year term life option through its Haven Simple policy.

Temporary Life Insurance

Temporary life insurance is offered during the waiting period for long-term life insurance approval. It provides immediate coverage while the underwriting process for the primary plan is completed. This type of short-term insurance ensures individuals remain covered until their traditional life insurance policy takes effect.

It is important to note that short-term life insurance is generally more expensive than other life insurance options if coverage is extended beyond a year. Therefore, it is recommended to consider long-term life insurance options if extended coverage is required.

Frequently asked questions