Short-term life insurance provides temporary coverage — usually lasting less than 12 months — and is often used by people who are setting up longer-term life insurance policies.
This helps to avoid gaps in coverage, like when you’re between jobs. Short-term policies usually last one year or less, unlike traditional term life insurance, which usually lasts for 10 to 30 years, or permanent life insurance, which lasts the rest of your life.
How does short-term life insurance work?
Short-term life insurance is most commonly used to provide financial protection during a period of transition. Short-term life insurance will prevent a coverage gap — whether you’re waiting for your insurer to come to a decision on a longer-term application, you’re in between jobs, or working on improving your odds of getting a better life insurance rate in the future.
While short-term policies have their own drawbacks, like increasing premiums and coverage maximums, in some circumstances, they can be the right fit for your needs.
Duration: Depending on the type of short-term policy, they can last for up to a year, or as short as 60 days.
Maximum amount of coverage: Compared to traditional policies, short-term life insurance payout amounts are usually lower, between $250,000 and $1 million, depending on the life insurance company. Traditional life insurance policies usually have a limit of $3 million or more.
Premiums: Some insurers will draft your first month’s premium early to cover the temporary insurance. Other insurers will simply ask to have your banking information on file and only draft your premium if you die during the application process — assuming you’d been approved — and they need to pay out the death benefit.
Types of short-term life insurance
Short-term life insurance commonly refers to two types of policies: temporary life insurance and annual renewable life insurance. Both can offer you coverage for a short period of time, but each one serves a different purpose.
1. Temporary life insurance
Temporary life insurance is a short-term coverage option offered by life insurance companies that provides some coverage while you wait for your longer-term or permanent policy to go into effect.
Temporary life insurance is the only type of short-term life insurance offered through policycentral — with most insurers, you can add this type of coverage when you apply for your traditional term life policy.
Because the standard application process often requires a health interview and a medical exam, it can take one to two months or more to complete. Unless you have a temporary policy, you don’t have any life insurance coverage until the insurer reviews all your information and you accept their official offer for coverage.
If you’re considering temporary life insurance, there are a few items to consider.
Temporary life insurance can’t be purchased on its own or in place of a long-term policy because it’s tied to the standard policy you’re purchasing from your insurer.
Coverage lasts until your application is approved or declined — usually 60 to 90 days.
The cost for temporary life insurance is based on the initial quote your insurer gave you.
If you have certain health conditions, you may not qualify for temporary coverage while you wait for approval. Health conditions that may affect your eligibility include:
Pre-existing conditions may not prevent you from getting life insurance altogether, but they may lead to a longer approval process or more costly premiums. Working with an independent broker like policycentral can help you find the life insurance company that’s going to be the best fit for you and your specific health profile.
2. Annual renewable life insurance
Annual renewable life insurance has a term length of one year and renews on an annual basis. You won’t have to reapply or take another medical exam to renew your policy.
It works similarly to term life insurance, but the premiums increase each year as you renew the policy.
You may want to consider an annual renewable life insurance policy if you anticipate changes to your life or health that will earn you lower premiums in the future. This could include:
You’re trying to lose weight or have recently lost weight for health reasons.
You’re trying to quit smoking or are a former smoker.
You’ve been convicted of a felony and are waiting for your probationary period to end.
Annual renewable life insurance policies are often convenient, but may also be more expensive than a comparable standard term life policy.
An alternative strategy to consider is to apply for a term policy as you normally would. Many life insurance companies give you the option to apply for reconsideration after a year if you undergo a lifestyle change that may considerably lower your rate, like quitting smoking. This way, you have the option to continue your existing coverage without applying again.
When to buy short-term life insurance
Short-term life insurance is designed to provide temporary coverage, not to replace a standard policy. Consider buying short-term life insurance under the following scenarios:
You’re waiting for a longer-term policy to be approved. It’s best to get a short-term policy so that you have at least some coverage before you get standard coverage.
You’re in between jobs. If you rely on employer-sponsored coverage, like group life insurance, getting short-term life insurance can help avoid any coverage gaps during job transitions.
You want to cover a temporary debt or other financial obligation. Short-term life insurance can help your beneficiaries pay that debt in full should you die during that period of time.
You’re working on improving your health or lifestyle. Short-term life insurance can keep you covered while waiting to apply for better standard rates if you just quit smoking, recovered from a health condition recently, or if you’re currently working in a dangerous occupation that might increase your premiums.
Average cost of short-term life insurance
Generally speaking, short-term life insurance is about the same price as a comparable term life insurance policy. The cost of a short-term life insurance policy will vary based on your age, health, and whether or not you smoke.
Sometimes you can get temporary coverage for free during the application process — your agent will tell you if this is something offered by your insurance company. Other times it’ll cost you one month’s premium, which will be the same rate your agent quoted you. That payment is then credited to your first premium when you sign your final policy, so in the long run, getting temporary coverage won’t cost you any money.
Annual renewable term policies, on the other hand, start slightly lower than level term life insurance policies, but their premiums increase every year and eventually will become significantly more expensive than a traditional life insurance policy.
Learn more about the cost of term life insurance
