If you’re like us, you spend a lot of your time thinking and wondering about life insurance. (No?)
And one question you might have is: What’s going on after I am applying for life insurance, but before Does my policy officially go into place? And a natural follow-up question would be: What happens if I die during that period of time, which could last for weeks or even months?
Be calm. There is an answer to how to fill that gap, so that your family is protected if something happens to you while you wait for your application to be approved and your policy to take effect.
And it turns out the same answer is also useful for people who don̵7;t qualify for, or can’t afford, traditional life insurance. It’s also useful if you’re going on a high-risk trip and want extra life insurance for the duration of your trip.
That answer? Short term life insurance. Learn more about what short-term life insurance is, why you might need it, and options to consider if it’s not the best decision for you.
What is short term life insurance?
Unlike traditional life insurance policies that last anywhere from a few years to the rest of your life, short-term life insurance policies have an end date, often within five years or less. Short-term life insurance isn’t necessarily a one-and-done deal, though – depending on the type of policy, you can renew your plan annually.
Types of short term life insurance policies
Temporary short-term protection
Temporary short-term life insurance coverage (TLIC) offers immediate coverage during the life insurance application process
If you buy traditional life insurance, that policy doesn’t go into effect until you’re approved. It can take weeks, and not everyone is comfortable waiting that long for coverage to begin. Temporary short-term life insurance provides peace of mind while waiting for the policy period of a traditional policy to complete.
Many insurance companies, including Haven Life, will offer you temporary coverage for the same amount of coverage you apply for, up to $1 million. You pay the same premium as you will eventually pay if your application is approved. Once your payment goes through, you’re covered – which is great if the unexpected happens.
Even better, there is basically no downside. If your application is rejected, or you decide not to accept the policy and rate offered, Haven Life will give you a full refund for this temporary cover.
Renewable short-term life
They sound similar, but renewable life insurance coverage is separate from the temporary coverage mentioned above. These short term life policies do not have a set end date – if your temporary situation happens to be longer than expected, a renewable short term policy allows you to extend your coverage by renewing your policy.
You can then renew this type of short-term insurance, usually on an annual basis, without having to reapply for coverage or undergo a medical exam. However, as you will be older, and possibly less healthy, you will likely pay a higher premium for this coverage.
While it may be cost-effective for you to purchase renewable short-term life insurance now, this type of insurance may cost you more in the long run if you keep renewing. That’s because traditional life insurance allows you to lock in the same rate for the life of the policy – meaning you pay the same monthly premium for the entire term, potentially up to 30 years.
If you buy life insurance while you’re young and healthy, you’ll lock in a lower rate that can again last for decades.
When Should You Consider Short Term Life Insurance?
Now that you know more about what short-term life insurance is and what options are available to you, consider the following situations when this coverage might make sense:
- Before a long-term policy is in place coverage: If you buy traditional insurance, you have a gap in coverage between when you sign up and when the policy goes into effect. This is the perfect situation for temporary coverage.
- You’re Between Jobs: Life insurance is often included as part of an employee benefits package. But if you’re between jobs, temporary insurance can be a good fit to fill the coverage gap.
- You’re young and healthy: If you’re a young, healthy adult just entering the workforce, low-cost annual renewable policies may be a good fit until you’ve established a meaningful, stable income and/or taken on long-term expenses such as a mortgage or have kids.
- You need to improve your lifestyle: Your health and how you maintain it often determines your insurance premium. If you are working on lifestyle changes to improve your health, and therefore lower your premiums, it may be a good idea to take out temporary insurance while you make these changes. Then you can lock in a lower interest rate on a term or permanent policy once you’ve done so.
- You have a high-risk trip coming up: If you engage in risky habits (or have a high-risk occupation), getting approved for traditional life insurance can be difficult — you’ll pay a high premium, or even be denied coverage. But if you know your risk is limited — a one-time trip, for example — it might make sense to get short-term coverage, if you can.
Alternative to short-term life insurance
Term life insurance
With traditional life insurance, you usually have access to higher coverage amounts than short-term insurance. (On Haven Life, you may be eligible for up to $3 million in coverage.)
Life insurance policies can range from 10 to 30 years and you pay tiered premiums: That is, you pay the same interest rate throughout the life of the policy.
Term life is usually the most affordable type of life insurance because you only pay for the coverage you need in the years you need it. Many choose term lengths that cover the years when their children are still living at home, when they are paying off a mortgage and before they retire from the workforce.
This is because these are the years when you a) draw salary; b) pay for things for other people (such as a child, spouse or other relatives dependent on you). Life insurance is a smart way to help cover these expenses should something happen to you, without having to pay for the insurance when you no longer need it.
All life insurance
Whole life insurance (a form of permanent life insurance) has no end date. It remains effective for the rest of your life, however long that may be. When comparing premiums with benefits, these policies are usually more expensive than life insurance policies.
That’s because they don’t expire (and therefore cover the years when you’re older and likely to be in poorer health), and because they often accumulate cash value over the life of the policy. You can borrow against that cash value, but that could affect the death benefit your loved ones receive, or cause tax consequences.
Where Haven Life comes in
Haven Life offers traditional life insurance, including the aforementioned temporary coverage to provide financial protection during the application process. Again, this is one of the most affordable types of life insurance available, and we’ve made it easier by moving the entire application process online. (Some applicants can even receive a coverage decision within minutes, without undergoing a medical exam, although you must be truthful in your application.)
Get started by getting a free life insurance quote online today.