Is Short-Term Insurance Worth It?

Short-term insurance is a policy that has a term period of less than a year. These types of policies are usually brought under special circumstances where the policyholder feels that short-term insurance could be beneficial for him and his family. Short-term insurance is a contract signed between two parties, where one party (insurer/ insurance company) promises to compensate the beneficiary upon the death of the policyholder.

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The other party (insured/ policyholder) promises to pay an amount known as a premium that keeps the policy running for a year and then goes up for renewal. 

If you buy a short-term insurance plan, you will pay a short-term premium (depending on the policy term) to get financial protection for your family.

When Are Short-Term Insurance Plans Beneficial?

The situations where short-term life insurance might be beneficial are:

  • If you are going to be on a journey and think this journey could be a little risky. Then you can buy yourself short-term life insurance.

  • If you are going to be exposed to some dangerous situations or events where you think your life could be at risk. Then for the safety of your family, you could buy short-term life insurance.

  • If you think any big mortgage payment or any type of loan repayment is coming up, to ensure financial safety for your family, in case something happens to you, you could buy short-term life insurance.

  • If you are travelling abroad, and for any reason, you unfortunately die, then your Indian long-term life insurance won't provide any cover. So to be on the safer side, you must buy short-term life insurance, such as travel insurance.

Should You Only Buy a Short-Term Life Insurance Plan?

No. Short-term life insurance plans are not a replacement or alternative for a long-term insurance policy. They are just there to provide you with an added layer of protection. You must have a basic life insurance plan for the long-term because most of the short-term policies have lower life coverage only for short spans. 

In case of your death, this small life coverage probably will not be sufficient for your family. So it is always better to get long-term life insurance plans to ensure adequate financial coverage for your family. 

Is a Short-Term Life Insurance Plan Worth It?

The worth of short-term life insurance may depend on the policyholder. If you think your life could be at risk due to exposure to dangerous or unsafe situations, short term insurance can help offer cover for a small period. It is worth it as an added financial safety for your family.

To further figure out whether a short-term policy will be worth your investment or not, you could use any short-term life insurance calculator. 

Why Buy a Long-Term Life Insurance Cover?

The reasons you should get yourself and your family long-term life insurance are:

  • The substantial sum is assured at a reasonable cost. The most beneficial thing about long-term term insurance is that it provides you with a large sum of money as life coverage at an affordable premium.  The premium charged by the insurance companies for term insurance is reasonably low due to the simplicity of the policy and the modesty of the plan.

  • Long-term life insurance helps you to plan your and your family's future better. Since its coverage is more, its policy term is more, and the premiums are reasonable and more affordable. These features could help you to plan financials with ease.

  • The option to buy additional riders. These are also known as add-ons as they provide extra strength to your base policy. The basic add-ons for term insurance are critical illness cover and accidental death cover. A critical illness cover provides financial help for the treatment of any critical illness that you have developed during your policy term. This add-on helps you store your savings since medical costs for treating these types of illnesses are very expensive. An accidental cover, as the name suggests, provides coverage if your death has occurred due to an accident

  • The availability of multiple plans and policies is another reason why you should buy long-term insurance. Other types of long-term life insurance include ULIP and endowment plans. These types of life insurance plans provide life coverage as well as an opportunity for wealth creation. Wealth creation means generating wealth using different financial instruments and investment tools, such as mutual funds, equities, and debt instruments.

For example, a ULIP plan invests a portion of your investment/premium into different funds, such as equity fund, debt fund, balanced fund, etc. And the rest of your investment is used for the insurance aspect of your plan. Although the returns are not promised or guaranteed, they still are a great investment option.

Which Short-Term Life Insurance Should I Buy?

The short-term life insurance that you should buy depends on few factors such as:

  • Different short-term plans offered by various insurance providers offer varying coverage. Therefore, you should buy a plan that would suffice your financial requirement based on your need.

  • Short-term plans usually range between 3-6 months. Before finalizing a short-term plan, analyze your needs and for how long you would need coverage.

  • It is essential to identify your specific needs before buying any short-term insurance plan. When an insurance plan promises to cater to your requirements, only then it serves its purpose well. Therefore, before approaching any insurer, sit and analyze your specific needs. When you know that, you can easily decide the other factors of the plan, such as coverage and tenure.

  • Ensure to research your insurer and always settle for the reliable one, has a high claim settlement ratio and serves your needs.

In Conclusion

Short-term life insurance might be helpful for you if you have identified that in the near term, your life might be at risk due to some unfortunate events which could occur. However, these policies are by no means a replacement for your long-term life insurance policies or plans. 

Short-term policies serve the purpose in the short term and will not be sufficient to provide coverage in the long run. Therefore, it must be understood that a short-term insurance plan is only like an added protective layer at specific times. For long-term goals, one must turn to long-term plans.

FAQ's

  • Q. What are the types of life insurance?

    Ans: There are various types of life insurance policies and plans such as term life insurance, whole life insurance, endowment life insurance plan, money-back insurance policy, "Savings and investment" insurance plans, retirement insurance plans, ULIPs (Unit Linked Insurance Plan), and lastly child insurance policy.
  • Q. What is a term life insurance calculator?

    Ans: A term life insurance calculator is a specially designed tool that policyholders could use to calculate and understand the various aspects of an insurance plan they are planning to buy or renew.
  • Q. What is the policy term?

    Ans: In simple words, the policy term of any insurance is the lifetime of that insurance. It is the period in which the particular policy is active. In case of any damage, loss, or death, the insurance company will be liable to pay a certain predetermined sum of money to the nominee.
  • Q. What is meant by the claim settlement ratio of a short-term life insurance plan?

    Ans: Claim settlement ratio is one of the most important factors you should consider before buying any type of policy, either long-term life insurance or short-term life insurance.
    This ratio simply implies how many claims an insurance company has settled among the total number of claims filed in a year. 
    CSR (Claim settlement ratio) = (Claims Settled/Total Claims Filled)*100.
  • Q. What causes a claim rejection in a short-term life insurance plan?

    Ans: The reasons that can cause a rejection of your claim are:
    • If a particular situation was covered under the policy, it can lead to claim rejection. For example, if you have raised a claim for accidental death that may not be included in the policy, your claim will get rejected in such a case.
    • If you have provided your insurer/insurance company with false or invalid information, your claim can be rejected.

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