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Short-Term Life Insurance

Updated
David Chang, ChFC®, CLU®
By: David Chang, ChFC®, CLU®

Our Insurance Expert

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Short-term life insurance can be a helpful way to provide financial protection for your loved ones in case of your death. Read to learn more about short-term life insurance and if it's right for you.

What is short-term life insurance?

Short-term life insurance, also known as temporary or short-term coverage, is a type of life insurance that provides protection for a short period of time. Short-term life insurance generally lasts for less than a year. This type of policy can be a good option for those who need coverage for only a limited amount of time and who may not be able to afford traditional long-term life insurance plans.

Different from permanent life insurance, which offers complete coverage for the duration of an individual's lifetime, short-term plans generally offer coverage of less than one year, with some allowing you to extend your coverage when the initial term expires if needed.

How does short-term life insurance work?

Short-term life insurance works the same as a typical term life insurance policy. During the term, the policyholder pays premiums to the life insurance company to keep the coverage in force. If the policyholder dies during the term of the policy, the death benefit is paid out to the named beneficiaries.

If the policyholder does not die during the term of the policy, then no death benefit is paid out and the coverage simply expires. In some cases, it may be possible to renew short-term life insurance policies, but this will typically come with higher premiums due to the increased risk associated with insuring an older person.

Types of short-term life insurance

Two common short-term life insurance options are temporary policies and annual renewable life insurance plans.

Temporary life insurance

Temporary life insurance is designed to provide protection when you get a long-term life insurance policy. Coverage is effective immediately and lasts until the primary life insurance policy you applied for goes into effect. The purpose of a temporary life insurance policy is to cover you while waiting for the underwriting of a primary life insurance policy to be completed and the policy to be in force.

Annual renewable life insurance

Annual renewable life insurance offers more flexibility than temporary policies. They are one-year term life insurance policies that you can renew every year or let the coverage expire. One benefit is that during the stated period, you can renew without having to reapply or take another medical exam. However the premiums will generally go up every year and can be more expensive than getting a term policy lasting 10 to 20 years.

When to buy short-term life insurance

While anyone may benefit from having some level of life insurance coverage in place, certain groups may find this type of plan especially appealing.

Those needing temporary coverage

If you have applied for a traditional term or whole life insurance policy and are waiting for the underwriting to be completed, then short-term life insurance can be a good bridge to cover the gap in coverage. This type of policy is also good if you need temporary coverage to cover short-term debt in case something should happen to you.

Young adults

This type of policy is ideal for people who need coverage temporarily and who do not want to commit to a long-term contract. It may also be a good choice for those who need coverage while they are in their early working years and may not yet have the financial means or stable enough income for a long-term life insurance policy. For a young, healthy adult looking for the most inexpensive life insurance policy, an annual renewable policy may be a good short-term fit.

Those who are in between jobs

Individuals who are out of work temporarily could benefit from access to affordable life insurance as well. Many employers offer life insurance to their employees, usually offering a benefit of up to $50,000. Until you get another job with an employer that offers life insurance, short-term life insurance can help cover the gap in employment.

Those experiencing temporary life events and changes

If a person is going through a divorce or has temporarily moved to a more dangerous job or environment, then a short-term life insurance policy can help cover them until life has stabilized and they can get a traditional life insurance policy.

Those needing to improve health and lifestyle

Your life insurance premium for a traditional policy will be based on your health, age, occupation, hobbies, and several other factors. If you believe you can improve your health or lifestyle to later reduce your premium, then a temporary policy can help provide protection until then.

Alternatives to short-term life insurance

Short-term life insurance policies can be used as a temporary measure to help cover expenses in the event of your death, such as funeral costs. However, it is important to remember that short-term life insurance is not a permanent solution and should not be relied upon as your only source of life insurance coverage. Here are some alternatives to consider instead.

Term life insurance

A short-term life insurance policy is a term life policy that only covers a year. You can get a long-term policy to cover five to 10 years or even longer. This is an inexpensive way to help provide peace of mind without having to worry about renewing every year. If you die during the term of the policy, your beneficiaries will receive the death benefit. If you do not die during the term, then no death benefit is paid out and the coverage simply expires.

Permanent life insurance

Permanent life insurance policies provide coverage for the policyholder's entire life, but they are more expensive. Permanent policies, such as whole life insurance, are more comprehensive and offer both death benefits and cash value accumulation. Whole life policies typically have higher premiums than term life policies, but they also provide lifelong protection and can build up cash value over time.

Ultimately, the decision to purchase short-term life insurance will depend on your individual situation and needs. Therefore, it is important to weigh all of these considerations carefully before making any decisions. But those in need of temporary coverage should certainly consider this viable life insurance option.

FAQs

  • Short-term life insurance, also known as temporary or short-term coverage, is a type of insurance plan that provides protection for one year or less. This type of policy can be a good option for those who need coverage for only a limited amount of time and who may not be able to afford traditional long-term life insurance plans.

  • Short-term life insurance policies offer coverage for less than one year, with some allowing you to extend your coverage when the initial term expires.

  • Short-term life insurance policies are typically term life insurance policies with no cash value. If the policyholder does not die during the term of the policy, then no death benefit is paid out and the coverage expires. In some cases, it may be possible to renew short-term life insurance policies.

  • Different from permanent life insurance, which offers complete coverage for the duration of an individual's lifetime, short-term insurance plans offer coverage for one year or less. There are also 20- or 30-year term life insurance policies available with fixed premiums for the life of the policy.

Our Insurance Expert