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Short Term Life Insurance

Life Insurance is an insurance product one buys when you are worried about the financial implications that your passing might bring about to those around you and the financial wellbeing of your estate. Most of us will associate life insurance as something one takes out over a long period of time, perhaps even up to fifty years or indeed right up until our passing. However, there’s a new relatively new life insurance product you might be seeing, or perhaps did not even know existed: short-term life insurance. In this article we explain what it is, how it’s different from other life insurance policies, the benefits, the negatives and everything in between.

What Is It?

Short-term life insurance provides life-insurance cover on a short-term basis, so that if you are looking for a life-insurance policy covering yourself for less than a year, this is the product you’ve been looking for. Traditional life insurance policies can have minimum coverage terms of at least two years, and short-term life insurance fills a gap in the market if you are looking for a life insurance policy that runs against a short period only. Rather than having no particular end date, it is a fixed-term product that runs for a specific (short) period (usually less than a year), and is true risk-cover: if no claim is made before the date of expiry, the policy will end without paying out.

Why Would You Need It

People’s circumstances are continually changing, and there are various scenarios in which a person might see short-term life insurance as a viable option that meets their needs:

  • You might have previously had life-insurance covered by your employer as a workplace benefit, but currently in the middle of changing jobs, so need something in the interim before beginning at your next place of work.
  • Perhaps your current lifestyle and individual situation doesn’t make a long-term life insurance necessary for you, but with travel to a particular foreign country coming up or a particular activity soon on the horizon, you might consider life insurance in these more risky circumstances.
  • You have decided to take out a long-term life insurance policy, and require the protection as quickly as possible, however it might be the case that there is a lengthy application process and the provider does not offer cover in that interim period between application and acceptance. Short-term insurance can fill that gap in cover.
  • Covering a short-term debt: you have a loan that is to be repaid over a year or less, and in that time you want to ensure that should anything happen to you, your dependents are not burdened with that debt.

How is it different to Long-Term Life Insurance Policies (and Others)

Traditional life insurance policies can have minimum coverage terms of at least two years, whereas short-term life insurance offers coverage periods up to one year, and sometimes for as little as one day.

Long-term life insurance tends to be open to all, regardless of age, and mostly only with minimum ages rather than a maximum. Short-term life insurance policies do not tend to be available to the over-70s, due to their short-term nature and certain risk-factors associated at that age.

They are also distinct from whole-life insurance which will continue to run until the policyholder passes away. Short-term life insurance will only provide coverage up to a certain date, after which coverage expires.

Short-term life insurance is also different from endowment life insurance policies, the latter of which not only take a long-term approach to their coverage, but also upon reaching a certain date (the “maturity date”) will pay out a lump sum to the policyholder based on their premiums paid in and performance of any associated investments (after which life insurance coverage comes to an end). Short-life insurance has no such “cash-in” mechanism built in, and open reaching a certain date will cease coverage, with no consequent payout or return of premium.

Advantages

Clearly the most outstanding element of this insurance product is that short-term life insurance fills the gap in coverage that most other traditional policies cannot: policy terms of less than a year, sometimes even just a day. This demonstrates a flexibility that long-term life insurance policies cannot usually emulate.

In addition, and perhaps most importantly, this product gives peace of mind to you and your loved ones that if you are on a short-term project that temporarily exposes you to a riskier life-situation, you have the protection in place that provides financial security to those in your life who need it, should the worst happen.

Disadvantages

As the policies are on a shorter term, and usually taken out due to elevated risk-periods in a person’s life, short-term life insurance will tend to be more expensive on a relative basis than an ordinary life insurance policy.

In addition, they only tend to be open to those at lower age limits, i.e. the under 70s, and where other life policies might be happy to quote without extensive medical checks and health history, short-term life policies will require this to make sure there are no additional underlying conditions that affect the policyholder’s risk factors.

Due to the short-periods, premiums also will need to be paid upfront, rather than staggered on a monthly basis.

How Can I Find the Best Short Term Life Insurance

Whilst short-term life insurance is certainly not as common as traditional life insurance policies, it’s still easy to find using the right resources. Price comparison websites are constantly updating their product offering to make sure they have the full suite of services that insurance companies are providing - this will give you a great overview of the state of the market and availability of short-term life insurance. Usually however the need for short-term life insurance is brought about by unique individual situations, and in that case it might be better to go to an insurance intermediary like an insurance broker, who will be able to find you a bespoke product that meets your needs.