How Does Short Term Life Insurance Work?
Short term life insurance, which is often called a “1-year term policy” or “annual renewable term”, is a term life policy that lasts exactly 12 months.
If you die, even one day after the policy is active, the insurer will pay the full death benefit as a tax-free cash payment. You get to name your beneficiaries, and they can spend the money however they desire.
After 12 months, the coverage ends unless you agree to renew the policy for an additional year at a higher price. Also, you could opt to buy a longer policy, such as a 10- or 15-year term (or permanent coverage).
How Much Does Short Term Life Insurance Cost?
Below are some short-term life insurance quotes. Keep in mind that prices are determined by your age, gender, health, and the amount of coverage you buy. Also, it’s vitally important to remember that the initial prices are very low because they will increase every single year.
When Should You Get A 1-Year Term Life Policy?
Annual renewable short-term life insurance is meant for people who need to fill a coverage gap or a temporary need, such as:
- Short term financial loan: You may need or want life insurance to cover an auto loan, personal loan, credit cards, business loan, or any other type of loan.
- Between jobs and have no personal coverage: Many Americans (roughly 50% according to LIMRA) rely on their employer-provided group term life insurance. If you’re in that category and changing jobs, a 1-year term life policy can be the most cost-effective way to ensure you’re covered until your job’s benefits kick in.
- Waiting for long-term coverage to be approved: You may have recently applied for a fully underwrittenFully Underwritten
A type of life insurance underwriting that requires the applicant to undergo a medical exam. In addition, the insurer will formally request copies of all your medical records from every physician you've seen in the last decade. Once all of this data is compiled, the insurer will determine whether you're approved and, if so, which rate classification you're eligible for. These rate classifications typically include: Preferred-Plus, Preferred, Standard, and various Sub-Standard ratings. The better the rating, the lower your premiums will be. life insurance policy and are just waiting for the approval. Policies that require a medical exam often take more than 6 weeks to be approved. Short term life insurance can be approved in as little as 1 day and can ensure you’re covered while you wait for the long-term policy to be approved. - Improving lifestyle: If you’re currently improving your health through positive lifestyle changes (diet and exercise), that will likely lead to better, less expensive life insurance options. For example, if you stopped smoking, you generally need to be smoke-free for at least one full year before insurance companies will begin offering you non-smoker rates. Ultimately, a short-term life policy could be a great way to get affordable coverage while you continue your health journey. Then, after enough time and better health, you can seek longer-term coverage and qualify for lower prices due to your lifestyle improvements.
Long-Term Life Insurance Options To Consider Rather Than Annual Renewable Term
A 1-year term policy is a good option for those who only need coverage for a very short period. However, if you need coverage for a more extended period of time (and with a fixed price), consider these alternative types of life insurance.
Traditional term life insurance
Standard term life insurance policies last 10-30 years and most come witha level premium.
Whole life insurance
Whole life insurance is permanent coverage with a fixed price. The policy will also build cash value, which you can withdraw and spend however you wish.
Universal life insurance
Universal life insurance is permanent coverage that builds cash value. Where it differs from whole life insurance is that universal life usually allows you to adjust your premiums. Plus, they can accumulate much more cash value.
Final expense insurance
Final expense insurance is a type of whole life insurance designed to cover all your end-of-life expenses. The coverage amounts are much lower (less than $50,000), and underwriting is very lenient, so applicants with high-risk medical conditions are still eligible.
Guaranteed acceptance
Guaranteed acceptance life insurance is a type of whole life policy that does not require you to answer health questions or undergo a medical exam. Because acceptance is guaranteed, there is a two-year waiting period. During the waiting period, the insurer will only refund your premiums if you were to die.
Frequently Asked Questions
Short-term life insurance is a good solution if you need quick coverage for a relatively brief period of time. It’s an excellent option for those who need coverage in between jobs or to cover a short-term financial loan. One of the biggest benefits of 1-year term life policies is the low cost. However, don’t fall into the trap of seeking these policies for long term needs. The premiums increase every year, and eventually, it will get tremendously expensive. If you need coverage for more than five years, you should probably buy a 10-year term policy (or longer) or some type of permanent coverage
You cannot cash out a term life policy because it has no cash value. However, you can cancel it at any time; you will not receive a cash refund.
If you qualify for an annual renewable term life policy (ART), there will not be a waiting period.
- Nationally licensed life insurance agent with over 16 years of experience.
- Personal annual production that puts him in the top .001% out of all life insurance agents in the nation.
Anthony Martin is a nationally licensed insurance expert with over 16 years of experience and has personally served over 10,000 clients with their life insurance needs. He frequently authors entrepreneurial and life insurance content for Forbes, Inc.com, Newsweek, Kiplinger, and Entreprenuer.com. Anthony has been consulted as an expert life insurance source for dozens of high-profile websites such as Forbes, Bankrate, Reuters, Fox Business, CNBC, Investopedia, Insurance.com, Yahoo Finance, and many more.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
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roughly 50% according to LIMRA. https://www.limra.com/siteassets/newsroom/liam/2025/2025_facts_about_life_insurance_workplace_benefits.pdf
