A new short-term life insurance product launched on October 26 that only lasts one year and allows you to test drive policies from Progressive Insurance and Fidelity Life. Touted as being beneficial for its affordable, quick coverage, one-year term life insurance might sound appealing and even comforting. But, appearances can be deceiving. Let’s unpack everything you need to know about this no-strings-attached life insurance.
Busting short-term life insurance myths
This new product targets commitment-phobic, healthy, first-time buyers. Starting at $7 a month for $50,000 in coverage for a 30-year-old non-smoker male, Progressive Insurance and Fidelity Life’s one-year term policies allow you to skip the life insurance medical exam.
No medical exam
No-medical-exam life insurance is a solid choice for healthier applicants, but there’s really nothing new here. Instant decision no-med life insurance is available from several other insurance companies.
Low-cost coverage
Life insurance for less than a Netflix subscription? Not so fast. This $7 starting cost will only get you $50,000 of coverage. Most people need several hundred thousand dollars more than that to adequately protect their family, cover their income, and pay off outstanding debts. For only $2 more on average per month*, a longer term life insurance policy is low cost and long-lasting.
→ Average life insurance cost per month
The other fine print
Coverage amounts for this short-term life insurance policy max out at $200,000. There are also age (we weren’t able to receive quotes for individuals over age 55) and health restrictions. This policy also isn’t yet available in every state. Even if you were interested in buying this type of coverage, you may not be able to, depending on your medical background and location.
Short-term life insurance isn’t a smart investment
Life insurance is designed to provide financial protection for a specified period, typically 10, 20, or 30 years. The most budget-friendly type of life insurance is term life insurance, which should outlast your longest debt (such as a mortgage) or financial obligation (supporting minor children).
But a super-short term life insurance policy that expires after one year won’t provide enough support. “The longer you wait to purchase your necessary coverage, the more you will pay in the long run,” says Patrick Hanzel, a Certified Financial Planner® and Advanced Planning Team Lead at Policygenius.
At the end of the one-year term, you’re left with these three options:
Renew your policy for an increased premium (premiums increase as you age)
Start the entire application process over again to compare quotes from other insurers (also subject to increased premiums)
Do nothing; you’ll no longer have life insurance coverage when you die
The cost of short-term life insurance
That $7-per-month starting cost can be misleading. Experts recommend buying enough life insurance to cover your financial obligations and outstanding debts, which is generally 10 to 15 times your income. For a 30-year-old making $50,000 a year, that’s $500,000 minimum coverage recommended. Coverage limits for Progressive and Fidelity’s RAPIDecision Life One max out at $200,000. Products available from Brighthouse Financial and Lincoln, two leading no-medical-exam life insurance companies, allow up to $2 million and $1 million in coverage respectively.
Here’s how a $200,000 Progressive Insurance by Fidelity Life’s RAPIDecision Life One policy costs compares to equivalent no-medical-exam life insurance options from Brighthouse Financial:
Age | Gender | RAPIDecision Life One (one year) | Brighthouse SimplySelect (20 years) |
|---|---|---|---|
25 | male | $20.00 | $13.67 |
female | $10.00 | $10.08 | |
30 | male | $16.00 | $12.47 |
female | $10.00 | $10.42 | |
35 | male | $18.00 | $13.50 |
female | $12.00 | $11.28 | |
40 | male | $22.00 | $17.25 |
female | $16.00 | $14.18 |
Methodology: Sample monthly premiums for RAPIDecision Life One are for male and female non-smokers in Ohio and may vary by coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 10/28/2021.
If you purchase a short-term policy like the one above, you’ll pay roughly the same price for one year of coverage as you would for 20 years of coverage. Since you can cancel a term life insurance policy at any time if you no longer need it, you’re missing out on the savings that come with locking in a Preferred rate at a younger age.
“Advisors typically recommend buying coverage up to your anticipated retirement age,” says Hanzel. “This type of short-term policy would only be recommended for extremely unique circumstances, and not for the normal life insurance purchaser,’ he adds.
Talk to a licensed advisor at Policygenius who can help answer any questions you have and see what coverage is right for you.
Who actually needs one-year term life insurance?
A one-year term life insurance policy might make sense in rare cases, specifically for short-term loans with lower values. Small business loans or home equity lines of credit (HELOC) are two such instances when you may only have a temporary need for life insurance.
However, buying a longer term life policy hedges the risk that you’ll need life insurance for longer than you think. Since you can cancel the policy any time when you’re sure you no longer need it, the risk of buying long-term instead of short-term is nonexistent.
*Based on no-medical-exam life insurance monthly premiums for 30-year-old male non-smokers with a Preferred health rating offered by Brighthouse Financial. Average rates may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 10/29/2021.
