Short-Term Life Insurance: Find Out Why You Shouldn’t Get it

Life insurance is crucial to help your loved ones once you’re no longer with them. Short-term life insurance is a kind of policy that offers coverage for an individual that lasts only up to one year. The question that arises is why should anyone want coverage for that short period?

In this article, we will give an answer to this and many other questions. More precise, we will cover:

  • What is the short-term policy?
  • How does short-term life insurance work, and who needs it?
  • Different types of short-term coverage.
  • Why shouldn’t you get short-term insurance?
  • How to stop depending on the banks?

Let’s get started!

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What Is Short-Term Life Insurance?

Short-term life insurance is a type of policy offered by insurance companies with temporary coverage. It is designed to protect people for a short period, usually less than a year.

Short-term life insurance works the same as the standard term life insurance policy, with only one significant difference – a lasting period. If the insured person dies during the year of coverage, their loved ones can appeal the death benefit. The payout can be used however they like – to pay off debt, cover everyday costs, or pay for funeral expenses. It’s even possible to name a charity as one of your beneficiaries.

Cases When People Request Short-Term Life Insurance

We made a list of possible situations when a short-term life insurance policy might work for some people:

Switching Jobs

When people have some policies tied to their employment or company, they might use short-term until they’re eligible for a new policy. It’s the case when someone has group life insurance. When they are able to enroll with a new employer, they can cancel the short-term insurance coverage.

Paying Off Short-Term Debt

It’s not uncommon for people to use a short-term life insurance policy to provide peace of mind until the loan is paid in full. If they die during that period, their beneficiary will get the death benefit to cover that debt. If not, the policy will complete its mission.

Improving Health

We all know that the monthly costs of insurance depend on an individual’s medical history and medical exam. Some things are fixable – losing weight and quitting smoking, for example. People might take a temporary policy to improve their well-being and have coverage until they are ready to apply for long-term coverage in better health.

You Have a Temporary Dangerous Job or Trip

In these cases, it might be helpful to have temporary life insurance just to assure death benefits in case of death.

Types of Short-Term Life Insurance

There are two kinds of short-term life insurance: temporary and annual renewable coverage.

Annual Renewable Life Insurance

This type of insurance is renewed at the end of each year, and in contrast to term life insurance, premiums increase each year based on the policyholder’s age. So, after the level premium paying period finishes, premiums will increase annually.

Even though premiums increase annually, the insured will not have to undergo a medical exam every time they renew. Annual renewable policies are often a choice for young and healthy people because they tend to be budget-friendly.

It might sound attractive to young people, but one thing has to be highlighted. As the policyholder ages, the premium rates go up. That means in some time, the cost will be the same, or often even more than with a traditional life insurance policy. 

We will come back to this later, but it’s essential to know that this is not the only option if you’re young-ish and with good health status. 

In other policies, you would undoubtedly have less expensive premiums. Suppose a 36-year-old male who is not a smoker gets a renewable term for less money than a 10-year life policy. 

After four years, the renewal policy premium would be more expensive than a level premium for 10 years, as reported by Insurance Geek.

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That is one of the reasons why an annual renewable term policy is made to provide coverage in a short period. It’s also almost impossible to get renewal life insurance online. 

Due to yearly renewal, most online portals will redirect you to an agent or a traditional quote. Thus, it is time-consuming and requires more research and asking around.

An Alternative

Another drawback is that most life insurance providers don’t offer renewable life policies. In case a person can’t get it in their insurance company, some people decide to get an alternative: no medical exam life insurance policies.

These policies have a quick approval process, but no medical life insurance has limited terms and coverage amounts. Additionally, it is often more expensive than the standard policy with a medical exam. So, it seems like this alternative isn’t any better.

Remember that product availability and features vary based on state and company. But, the financial strength and claims-paying ability of the issuing company support guarantee for all insurance products, and each company is solely responsible.

Temporary Life Insurance

People undergoing underwriting for a traditional life insurance policy but didn’t finish the whole process might find this as a solution for their situation. If the insurer offers temporary coverage, it can be helpful in the interim until the traditional life insurance policy isn’t completely established. 

People can pay the regular premium, and their beneficiaries will receive the death benefit if they pass away. This short-term insurance ends after approval for full coverage.

Who Needs Short-Term Life Insurance?

Besides the previously covered situations, some experts suggest that short-term life insurance might be a good option for people nearing retirement age. Since it’s only a term life insurance coverage, it can be ideal for people that need quick coverage for only a few years.

Alternatively, a short-term life insurance policy might be a favorable option for people with limited financial capacity. We won’t cover these particular situations in this article, but there are ways to fix those problems and make smart financial decisions.

Is Short-Term Life Insurance for You?

Every one of us experiences unique situations and challenges. It’s always wise to consult a financial professional if you want specific advice for your case. However, we firmly believe that overall short-term life insurance isn’t the best financial decision. Let us elaborate on it.

Your permanent life insurance policy won’t be expensive if you’re young and without health issues. Yes, they can be pricey, but for people over 50 years and in a pathological state. 

Further, all the cases when it makes sense to get short-term life coverage can be resolved with other financial products. More precisely, we think the best alternative is a Whole life insurance policy.

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Whole Life Insurance

It is one type of permanent insurance, meaning it’s designed to last during an individual’s lifetime. Unlike term life policies, the annual premium is much higher and accumulates cash value.

A fixed coverage amount with level premiums and benefits won’t change during your lifetime. Other benefits of whole life are guaranteed permanent coverage, family options, additional payments for covered accident-related claims, and early payouts for terminal illness.

With your whole life, you can easily change jobs and not worry about your policy because it’s not connected to your employment. If you choose a mutual insurance company, your whole life policy will produce dividends, adding value beyond your death benefit.

One more fantastic aspect – you are in complete control. You can access and use your policy however you like, without penalties and problems. So, any gap in life insurance coverage we mentioned earlier can be fixed with the Whole life policy because you can use it as a source of equity.

Most whole life policies include a reduced paid-up (RPU) non-forfeiture option. This feature allows you to stop paying premiums on your whole life policy. In exchange, the life insurance company will provide you with a reduced amount of life insurance. 

This is the perfect option for people who need some life insurance but whose situation has changed, for example, due to recent retirement. It is also an alternative for people who want to retain a death benefit but are not in a situation to afford monthly premiums.

And if you thought that short-term life insurance could help you with your financial problems like debt, get ready to hear this! With whole life, you can replicate the banking system with your own money.

After a premium level payment, some amount enters into the savings portion of the policy called cash value. With every payment, the cash value accumulates at a taxed-free rate. The best part is that you can utilize it as you need and like. You can repay the mortgage, put that money into your retirement savings, or even buy more coverage.

Gain Financial Freedom

One of the core reasons we preferred a Whole life policy over any other is because it has the key to Infinite Banking Concept. Infinite Banking Concept, or over-funded life insurance, is a process that relies on Whole life insurance and allows you to become your own banker.

The main idea of the Infinite Banking Concept is to recapture the interest which otherwise goes to banks and finance companies. As Nelson Nash, a founder of this concept, say, ”you finance everything you buy… you either pay interest to someone else or give up the interest you could have otherwise earned.”

The true power of over-funded life insurance is that it can solve any problem and help you take control back over your financial needs. Instead of your money flowing away, it will flow back to you. You borrow against your policy, and the cash value grows and earns dividends. 

You are copying the traditional banking system but without banks! Say goodbye forever to high-interest rates, loan agreements, application fees, interest charges, and everything else banks do to profit themselves instead of you.

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Final Thoughts

We hope this article helped you better understand short-term life insurance coverage and its pros and cons. It’s an option that should be used only in rare and difficult situations. But if you’re thinking about this as a choice for the future – our advice is to skip it, because as you saw it, it can’t be beneficial in the long run.

Our advice is always to go for a permanent policy, precisely a Whole life policy. With just one tool, you get life-long coverage while also having an investment vehicle.

Here at Wealth Nation, we want to live life to its fullest, not only to survive. If you want to achieve all of your financial goals, watch our free masterclass to get started!