What is short term life insurance?
Short term life insurance in a nutshell
Insuring your life is an effective way to guarantee the availability of funds in the future, usually for your family, and about 52% of UK adults have it in some form. Short term life insurance lets you use the same facility to cover more immediate and time-limited financial obligations. It’s a fairly new product that usually has special terms and a simpler underwriting process.
What are the main features of short term life insurance UK policies?
Length of policy
Short term life insurance policies typically last for between 1 and 5 years. Many insurance companies are reluctant to offer insurance for less than 1 year.
Premiums
Because the period of cover is much shorter than other term and whole life policies, the monthly premiums are lower, starting from just a few pounds.
Potential payout
If the insured passes away during the term of the policy, the insurer will pay out the sum insured to the beneficiaries, otherwise the policy will come to an end and no payment is due.
No cash value
Unlike some whole life policies, short term insurance has no cash value. This means it will only pay out on the death of the insured and it has no investment or savings value to borrow against or withdraw.
Why take out short term life insurance?
If you’re going through temporary financial instability which you expect to be resolved in a few months or years then taking out a short term policy could be a wise move.
For example, you may want to start your own business but you can’t be sure it will succeed. Should you pass away before you can turn a profit or return to paid employment, the proceeds of a short term life insurance policy can help your family through.
Alongside life insurance, you could consider taking out income protection insurance, which will protect you and your family against the financial impact of illness or injury, rather than death.
To take another example, if you have to relocate temporarily to a country where your long term insurance doesn’t cover you, a short term policy can be a good supplementary measure.
Short term vs long term life insurance
Application
Applying for short term insurance is usually simpler than the application process for long term policies. It often involves more straightforward underwriting, which is the insurer’s method of calculating the risk. You may not need to have a medical examination and the insurer’s questions about your health and family history could be more limited.
Cost
The pricing of short term life insurance can be complicated. Because it covers you for a shorter period and has no cash value, the premiums are typically cheaper. However, in some cases the risks could be unusually high – for example if you’re travelling to a dangerous part of the world. That could actually make the premiums higher than standard life insurance. Circumstances like this are exceptional, but it’s good to be aware of the possibility.
Flexibility
Many short term life insurance policies can be renewed annually which means without making a long-term commitment you have the option to extend your cover if your circumstances demand it.
Who is short term life insurance for?
To summarise, short term life insurance is particularly suitable for people who
- Are between jobs, moving house or going through major changes in their lives
- Have short-term financial obligations like car finance agreements and bridging loans.
- Need to move abroad temporarily in the course of their job
- Are awaiting approval of a long term policy
- Need cover for one-off dangerous activities
- Want an affordable alternative to long term insurance
This isn’t an exhaustive list, but gives an idea of the usefulness of short term life insurance.
Eligibility for short term life insurance
Eligibility is determined by the same sort of considerations as any other form of life insurance. It’s usually available up to the age of 70 and your insurer will need to know about your medical history, current state of health, lifestyle and occupation. However, the questions they ask probably won’t be as searching as those for longer term options. The level of risk will of course vary according to your circumstances and your reasons for taking out insurance, but generally speaking, if you would be eligible for other kinds of life insurance then you shouldn’t have trouble finding a short term policy.
FAQs
Many short term policies will cover you without exclusions for particular causes of death or dangerous jobs and extreme sports, but they will usually apply limitations including death caused by engaging in criminal activity, drug or alcohol abuse, suicide, acts of terrorism and war.
Most short term life insurance policies will be between 1 and 5 years. However, some insurers will offer cover for shorter periods to cover exceptional situations, such as hazardous holidays or one-off events like sky-diving.
Many insurers will allow you to extend short term policies on the expiry date, usually for a year. Bear in mind that if you do this repeatedly it could work out more expensive than taking out a longer term policy in the first place.
Yes, there’s no limit on the number and type of policies you can take out. The payout from one will not affect what you receive from another. It may be a good idea to work out whether you need separate policies, since you may be able to get the cover you want from just one.
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