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How Does Short-Term Life Insurance Work?

Short-term insurance is temporary coverage for a particular period of time and can be availed at the time of emergencies with a limited budget. Read ahead to know more about it.

  • 3,897 Views | Updated on: Jun 07, 2024

Term insurance has now become the need of the hour because of the uncertainty involved in various life events. Depending on the financial goals of your life, you can choose short-term life insurance or long-term life insurance.

Key takeaways

  • Short-term insurance provides temporary financial coverage during any time period of life whenever required.
  • Short-term life insurance offers financial security to the family in case of emergencies.
  • If you have a limited budget to spend on insurance, then considering short-term plans will help you manage your finances.

Short-term insurance provides temporary financial coverage during any time period of life whenever required. Generally, it is available on special terms and based on specified information, with no need for medical reports and tests. On the contrary, long-term life insurance provides coverage for a long period of time, up to 60 years. It is not restricted to short-term goals and specific purposes. In this blog, we will dive deep into short-term life insurance and how they work.

Who Needs Short-Term Life Insurance?

This insurance product is basically designed to provide cover to those who need it on an immediate basis or for a very short time. Here are some examples where you can consider it relevant to buy for yourself and your loved ones:

  • If you are travelling somewhere and you want to be protected against any mishap.
  • If you are seeking a new job.
  • A work assignment may take you to a hazardous location where your current insurance provider does not provide cover.
  • In case of coverage requirements for short-term loans or business transactions.

Benefits of Short-Term Insurance

Short-term insurance plan gives freedom in terms of the amount spent on premiums. You can modify your plans according to your budget and circumstances. Mentioned below are some additional benefits you can avail yourself from such plans:

Financial Security

Short-term life insurance offers financial security to the family in case of emergencies. With affordable premiums along with full coverage, it ensures your finances are managed properly. It also helps you in fulfilling your short-term as well as long-term financial needs.

Death Benefit

The policy provides a death benefit; under this, the nominee receives the sum assured in case of the unfortunate demise of the insured person during the policy term. The name of the nominee is pre-written in the policy document to avoid any kind of fraud.

Income Tax Benefit

Similar to other insurance policies, short-term insurance also offers tax benefits under Section 80C of the Income Tax Act. You can get deductions on the premium paid for the policy.

Surrender Benefit

Surrender benefits are not readily available with every policy you buy, but in the case of a short-term plan, you can avail this benefit. If you, as an insured person, surrender before the maturity period, you get surrender benefits which depend upon the policy and the insurer.

Low Premium

As short-term insurance is designed for a specific purpose and for a specific time period, it requires a low premium compared to other life insurance. The premium also depends on the amount of the sum assured.

How Short-Term Insurance Plans Work?

The working of this policy is quite simple. The policyholder pays the premium during the policy tenure, in return for which financial protection is provided by the insurer. In case of the demise of the insured person during the policy tenure, the nominee receives the benefits, which depend on the premium.

In case you cannot afford the premium of long-term policies, then short-term plans can give you similar benefits with affordable rates. The policy ensures coverage with most of the features similar to the long-term insurance plan. Here are some key features of the policy you must be aware of:

Duration

As the name suggests, the time period is limited and generally lasts between 60-90 days or a maximum of one year. You can renew the policy anytime time you want for future needs and circumstances.

Short-Term Plan Coverage

Short-term plan coverage refers to insurance policies that provide temporary protection for a specific period, typically less than a year. These plans may offer coverage for medical expenses, travel, or other specific needs.

Premiums

Premium is the amount you pay annually against the coverage insurer provides. Some insurers draft the first month’s premium early to cover the temporary insurance. The amount of premium is not fixed and depends upon the plan you choose; with higher coverage, more premium is paid and vice-versa

Factors to Consider Before Buying Term Insurance

While buying short-term or long-term insurance, you must be clear about certain things you need in your life. As buying term insurance is an important decision for you and your loved ones, you must consider the following factors before making a decision:

Financial Objectives

You must consider the crucial financial goals in your life that you feel can impact the coverage duration and sum assured. For e.g., In case you are planning an event that involves higher risk and, therefore, you want to safeguard your family’s financial well-being, you can consider a short-term insurance plan in such a situation.

Coverage

Insufficient coverage negates the purpose of having insurance. Under term insurance, you have an option of choosing the desired sum assured according to the requirement. It is worth buying term insurance with adequate coverage as it provides a protective net to the family.

Consideration of Liabilities

The duration of the plan gets impacted by the liabilities you have. In case you have an outstanding loan that can continue even after your retirement, you can consider a long-term plan to protect your family from the burden of loan repayment.

Bottom Line

Family is the strongest pillar in everyone’s life; therefore, it becomes of utmost importance to protect this pillar from any unfortunate event. To celebrate the gift of life, you must consider term insurance. Short-term insurance not only supports you financially but allows you to live life stress-free with limited funds. To avail yourself of the benefits, you must consider a plan under short-term insurance and select the insurer wisely, as this decision is considered a top priority in anyone’s life.

- 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**

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