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Difference Between Short-Term and Long-Term Insurance

Short-term insurance is an interim support for life. In contrast, long-term insurance provides lifetime coverage which ends either on maturity or death.

  • 6,163 Views | Updated on: Jun 05, 2024

Life insurance is not an expense but an investment for the future. It helps sail through tough times without worrying about sudden out-of-pocket expenses. Short-term and long-term insurance plans have their own advantages, which can be availed depending on the circumstances.

Humans cannot control every life event, and emergencies arrive uninformed. To plan the future better, insurance plays a vital role. It provides coverage against uncertain life events like theft, demise, damage to belongings, etc. With the right amount of premium, you can provide yourself and your loved ones with appropriate benefits in tough times of life. It not only protects your savings but also ensures stress-free living. In this blog, we will discuss short-term and long-term insurance with their respective benefits.

Short-Term Life Insurance

As the name suggests, short-term life insurance is bought for a specific purpose for a short time period which is less than 5 years. It is important to note that it is a temporary life insurance plan whose benefits can be availed till a certain time period. The most common use of such a policy is when you are traveling and want to have an additional layer of coverage. The situations when short-term life insurance may be suitable include the following:

  • When you are carrying a mortgage
  • In case you require coverage for a short-term loan
  • You may get explored into a dangerous situation
  • You are traveling

Features of Short-Term Insurance

As life is uncertain, covering yourself and your loved ones under an insurance plan is always a great idea. If you want coverage for a short duration, then there are a variety of plans to choose from with the following major features:

Affordable

Short-term insurance plans are affordable and come with cheaper premiums as compared to other types of insurance plans.

Offers Rebate

Most insurance companies offer rebates if you opt for a higher sum assured. For example, non-smokers get a rebate; as such, people are less exposed to some of the deadly diseases.

Flexibility

Term plan gives flexibility in paying a premium. Most of the insurers give the option of paying premiums annually, semi-annually, Quarterly or monthly.

Long-Term Life Insurance

Long-term life insurance gives protection to your life or your ability to earn an income for a longer period of time which may be even beyond 30 years. You need to pay a particular amount of premium every year against the coverage provided. The benefits involve lump sum cash payment or a monthly income in case of serious illness or disability.

Features of Long-Term Insurance

Long-term insurance serves the purpose if you are looking to cover your loved ones against all adversities. Here are some salient features of a long-term insurance plan.

Long-Term Protection

Long-term insurance provides coverage of up to 50 years. You can be stress-free once you enroll in the plan.

Rider Benefit

You can avail yourself of rider benefits such as income benefit rider, accidental permanent disability and critical illness rider.

Back-Up Against Loan

If you do not wish to burden your loved ones with existing loans, a long-term plan will help you sail through unfortunate events.

Short-Term vs Long-Term Life Insurance

Buying life insurance has now become the priority in everyone’s life, especially after COVID-19. The disease has made everyone more conscious about health and health-related decisions. One such major decision is . To simplify your search, mentioned below are the difference between both types of insurance.

Basis

Short-term Insurance

Long-term Insurance

Duration

The coverage period typically ranges from 1 to 10 years

The coverage period can be up to 30 years or more

Premiums

Premiums are generally lower due to the shorter coverage period

Premiums are usually higher due to the more extended coverage period

Coverage

Can be useful for temporary coverage needs, such as paying off a mortgage or other debts

Can provide more comprehensive coverage for long-term financial needs, such as income replacement or college tuition for children

Benefits

May be renewable for another term or convertible to a permanent policy

Often includes a cash value component that can be borrowed against or used for other financial needs

How to Choose the Best Term Insurance Plan?

Choosing the right term insurance plan is a tough task. There are many insurance companies in the market that offer different plans, and you must select according to your needs. The best way to select the plan is by comparing various features and benefits. Here are some points that should be considered while selecting a plan:

The Cost of the Policy

The cost of the policy is a significant factor to consider. It involves comparing the cost of the premium with the benefits it provides. You must choose a plan which provides maximum benefits with an affordable premium.

Current Health Condition

Every plan has exclusions and inclusions. Generally, policies come with a waiting period for your existing disease. The waiting period might last from a few months to a year. You need to consider a plan which has your existing diseases in the inclusion section.

Age of the Insured Person

With the increase in age, risk also gets increases, which is why the premium gets increased. The premium is directly proportionate to the age. If you have senior citizens at home, you should select a policy that provides benefits in old age, such as daycare facilities, coverage for critical illness, etc.

The Type of Coverage Needed

Buying a policy requires an evaluation of your finances and needs. In every phase of life, the situation changes and so is the coverage needs. As Every individual has different needs and financial obligations for the future, you must evaluate your needs and buy a plan accordingly.

Conclusion

Insurance is not a new concept for most of the people in India. The benefits of the insurance policy have been availed by many families and individuals, and it provides financial support in the times they need it the most.

With options like short-term insurance plans and long-term insurance plans, you can prioritize the important aspects of your life. From providing coverage for your assets to serving as a saviour for the family in case of the demise of the policyholder, insurance has always been a resource to rely on. To utilize this resource, you must make a wise purchasing decision and give a gift of insurance to your family.

Key Takeaway

  • Short-term life insurance covers your life for a specific purpose at a specific time (usually lesser than 5 years).
  • Long-term life insurance provides coverage for your life for at least five years, which can go up to 30 years or more.
  • Before buying any term insurance, you must compare your financial needs and long-term goals.

- A Consumer Education Initiative series by Kotak Life

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Features

  • Life Cover till 85 years for Life & Life Secure Option
  • 3 Payout Options
  • Special Rates for Women
  • Option to exit the policy with premium refund at the age of 60*
  • Special Rates for Non-Tobacco Users
  • Free Medical Check Up every 5th year**

Ref. No. KLI/22-23/E-BB/2435

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