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The goal of having life insurance is to ease the burden on your loved ones after you die. Your life insurance payout can cover the mortgage, education, and other expenses so your family can continue paying the bills.
Traditional life insurance policies have a waiting period from the time of your application to approval, known as underwriting. The underwriting process can take four to six weeks.
If you have no previous life insurance policy in effect — from your employer, trade union, or professional association — then you are without coverage until underwriting approves your application. During this period, people seek temporary life insurance to fill in the gap.
Others may seek short-term life insurance because they do not qualify for traditional life insurance or are going on high-risk adventure travels and want additional coverage.
Note that there are two types of short-term life insurance: the temporary coverage offered by life insurance companies to cover applicants during the underwriting process, and annual renewable life insurance that’s re-evaluated every year.
Before we get into short-term life insurance, let’s start with the basics. Life insurance is a contract between you and the life insurance company, where you pay premiums (monthly or annually) for a payout that your living relatives will receive upon your death, known as the death benefit. Should you die, the insurance company pays the death benefit to your chosen beneficiary.
The difference between term and whole life insurance
There are two types of life insurance: whole life and term life. Either can require a medical exam. Whole life premiums can be more expensive than term life premiums because they have a cash value component in addition to the death benefit. You pay a whole life policy throughout your lifetime, so the coverage is for your lifetime.
Term life, on the other hand, is considerably cheaper because it doesn’t have a cash value component and coverage (as well as payment) is limited to a given term. Term life insurance covers a 10, 20, or 30-year period. If you die during that period, your beneficiaries get your death benefit. Term life insurance is generally recommended for any adult with a dependent, and its biggest draw is the low monthly payments.
Most short-term life insurance policies are a form of term life insurance. However, short-term life insurance can come as whole life insurance, so you’ll want to be clear on what you’re signing up for.
To get life insurance, you must go through an evaluation process known as underwriting.
Underwriting is similar to the lending process you would go through to qualify for a mortgage or finance a car — the lender (or in this case, the insurance company) determines how much of a risk you are and how much to lend you. The underwriting process collects information about your health (your medical history), job, and other personal information to determine how much the company will insure you and what your premium will be.
A medical exam is generally part of the underwriting process — although there’s such thing as no medical exam life insurance — which is how the insurance company determines your insurability. The medical exam can take up to 30 minutes and usually includes a blood and urine sample, weight, and blood pressure screening.
The entire underwriting process can take four to six weeks, and you aren’t covered until the process is complete. This is why some people seek temporary life insurance: to cover them while they’re waiting for approval.
If you’re undergoing underwriting for a traditional life insurance policy and your provider offers temporary coverage in the interim, you might want to consider it so you know you’re covered while you wait. You pay the regular premium and if you die during underwriting, your beneficiaries receive your death benefit. It ends once you are approved for full coverage.
However, if you do not qualify for a traditional life insurance or want coverage for an abbreviated period of time, then you may need to find other short-term insurance coverage. According to Protective Life, some people get short-term insurance for additional coverage if they are embarking on an adventure-seeking trip with high risks or during business transactions where a lot of money is on the line.
Because term life policies are usually for 10, 20, and 30-year terms, some life insurance providers may not offer short-term life insurance, which is usually less than 5 years.
Aside from temporary life insurance coverage offered by an insurer during an underwriting period, you can also buy annual renewable life insurance, which is also technically short-term. For young, healthy people, the appeal is clear: It tends to be extremely cheap.
Traditional term life insurance covers a 10, 20, or 30-year period and your monthly payment remains the same throughout the entire term.
Renewable life insurance does not work like that. It is renewed at the end of each year and unlike with term life insurance, where your premium is locked in for a decade or more, your premium can go up each year when you renew. Although your premium may increase each year based on your age, according to Fidelity Life, you will not have to have a medical exam every time you renew.
Annual renewable life insurance gets more expensive over time
Fidelity notes that annual renewable policies are best suited for younger adults in good health because the risk of dying is lower, so the rates will initially be cheaper than a traditional life insurance policy. However, as you age, the premium rates go up. That’s when you should consider a traditional term life policy for 10, 20, or 30 years.
Remember that annual renewable term life insurance is supposed to be short-term coverage. Eventually, you should switch to a traditional term life policy because you will ultimately end up paying more for a renewable term life policy than for a traditional term life policy.
According to Insurance Geek, a 36-year-old non-smoking male can get a renewable term for $140 a year when a 10-year term life policy would cost $170 a year. However, within four years, the renewal policy premium becomes more expensive than the $170-a-year term life policy.
Because renewal life insurance is annual, it is harder to get online quotes to compare your options. Most online portals will refer you to an agent or redirect you to a traditional term life policy quote. Therefore, getting renewable life insurance will require a bit more asking around than a traditional life insurance policy.
If you don’t qualify, consider no medical exam life insurance
Some life insurance providers do not offer renewable life policies. An alternative is no medical exam life insurance policies that have a quick approval process. However, no medical life insurance has limited terms and coverage amounts.
Also, it is usually more expensive than a traditional life insurance policy with a medical exam. However, if you have disqualifying health concerns, then you should consider no medical exam life insurance. To get the best possible deal on life insurance, you’ll want to shop around and compare quotes.