Everything you need to know about short-term life insurance
The purpose of life insurance is to ensure that your loved ones are looked after once you have passed away, essentially replacing your income to cover future expenses. The amount that these chosen beneficiaries receive is known as a ‘death benefit’.
There are several different types of policies out there, so you should find the one that suits your personal circumstances and individual needs, and ensure that it provides the death benefit you require.
One of these policies that may well cater for you the best, is short-term life insurance, although sometimes used as an extra layer of coverage alongside other life protection. This article will explain further what this type of protection entails, so that you have a full understanding of what it is, and whether or not short-term life insurance is suitable for you.
What is short-term life insurance?
According to The Insurance Bulletin, term life insurance is designed to cover specific risks for a period of time, and offers a stated death benefit for a set period of time or term. When you stop paying the premiums, the coverage ends.
Traditional term life insurance usually covers a period of 10, 20 or 30 years. Short-term life insurance is a form of term insurance, and this tends to relate to a policy that covers you for only one year. This can be employed as temporary cover until a traditional long-term policy is established, or can be renewed on an annual basis. This can initially seem a cheap option, but is likely to have increasing rates each year you renew the policy.
Again, this depends on personal circumstances, and it may be the case that you seek a short-term life insurance policy, as you do not yet qualify for traditional or whole life insurance.
When may you need short-term life insurance?
There are several reasons why you may consider short-term life insurance, which we have slightly brushed upon previously, and can range from the need for temporary cover, or in the circumstance that other life insurances are not obtainable.
Some of the other situations include adding short-term cover on top of an existing life insurance, and for the following reasons:
- When you are travelling for a certain period time, involving risky adventures;
- If you are to be exposed to a dangerous situation or event;
- When life insurance is required to cover a short-term loan or business transaction that involves a significant amount of money;
- If your beneficiaries are children, and want coverage for the years they are at college, to ensure their expenses are paid for.
If you find yourself in any of the above situations, it’s best to conduct some research into short-term policies, and possibly to consult a professional adviser, to see if this type of cover is suited to you.
The difference between term and whole life insurance
The main defining factor between short-term and whole life insurance, is that the former tends to be temporary whilst the latter is permanent.
A short-term policy, therefore, only lasts for the term agreed, which is usually a year. During that time, you are covered for the event of your death, and your beneficiaries are guaranteed to receive the agreed death benefit. However, after that year is up and the term of the policy is complete, the protection no longer applies, and if you were to pass away, your beneficiaries will no longer receive the money.
On the other hand, a whole life insurance policy is designed to cover you until the event of your death, as the name of the policy suggests. This means there is no end date for the protection, unlike short-term life insurance. Whatever age you are when you pass away, your beneficiaries are always guaranteed to be paid the death benefit.
As whole life insurance covers you for a longer period of time than short-term life insurance, it does tend to be the more expensive option. Depending on your circumstances, a short-term life insurance may be the best option, but it is worth knowing that the premiums usually increase with each annual renewal.
As always, the type of life insurance you choose will be dependent on many factors including your personal circumstances, how much you can afford for premiums, and how long you want the protection for. One thing’s for sure, it’s never too early to start thinking about your future.