Short-Term Insurance Vs Long-Term Insurance


May 21, 2024
Team Pineapple

Insurance is a lot like a tree; although it is a singular structure, it sprouts countless branches, each headed in a unique direction. 

Moreover, despite growing from the same source, all the branches are unique.

Numerous other components have evolved from the insurance source, namely short-term and long-term insurance.

Short-term and long-term insurance are two types of insurance policies with different coverage durations, types of coverage, and costs.

Understanding the differences is crucial for choosing the best insurance coverage to suit your needs.

So, let’s dive into these differences mentioned above.

Short-term Insurance

Most of us are familiar with short-term insurance, even if the term might sound new. 

Short-term insurance is coverage for possessions like your car, house, your cellphone; you name it. Policies only last for a limited time, typically a few months to a year. 

This type of insurance is ideal for individuals needing temporary coverage for a specified period, and policies typically cover unexpected events like accidents.

Given the short lifespan of short-term insurance, it is usually renewed annually, with price increases or decreases being discussed during policy renewal.

The premiums for short-term insurance are much lower than those for long-term insurance, but the downside is that the policyholder has to renew the policy more frequently.

Long-term Insurance

Long-term insurance provides coverage for much longer, from as little as 5 years to an entire lifetime. 

Long-term insurance covers the priceless aspects of life. It directly relates to people and life-changing events like retirement, disability and death.

Unlike short-term insurance, long-term insurance policies have higher premiums, but the coverage is more comprehensive and extensive and provides peace of mind for the policyholder and their family.

Also, unlike short-term insurance, policies for long-term insurance typically come to a close when the policyholder passes on.

Pros and Cons

Short-term insurance is a cost-effective solution for those who need temporary coverage. These cover emergencies like hospitalisation, ICU charges, and ambulance costs. 

As mentioned above, they are tailored to suit those looking to fill a temporary gap in coverage, making them ill-fitting for those needing comprehensive coverage for a more extended period.

More benefits include, but are not limited to,

  • Lower premiums: Short-term insurance policies are less expensive than traditional long-term policies, making them a cost-effective option for those of us on a tight budget.

  • Flexible coverage options: Shorter turnaround time means you can easily switch between different insurance providers, plus policies can be adjusted to meet your needs.

  • Time efficient: Short-term insurance can be purchased quickly and easily, making it an ideal option for immediate coverage.

However, like with all things in life, there are cons,

  • Fewer benefits: Short-term insurance policies often have fewer benefits and lower coverage limits than long-term policies.

  • Renewal difficulties: Renewing short-term insurance policies can be challenging, especially for people with pre-existing conditions who may be declined coverage or offered at higher premiums.

  • High premiums: Despite being less expensive than long-term policies, short-term insurance premiums can be significantly higher than long-term ones in the long run.

Long-term insurance provides comprehensive coverage, extending to events including critical illnesses and maternity benefits.

Long-term insurance benefits are enjoyed for a longer duration, plus you don’t have to worry about frequently renewing your policy annually or having the policy lapse.

The pros of long-term insurance are

  • Stable premiums: The premiums for long-term insurance policies are generally more stable and predictable than those for short-term policies.

  • Increased savings: Long-term insurance policies provide opportunities to save money over the long term through investment.

  • Comprehensive coverage: Long-term insurance policies typically offer comprehensive coverage that includes a variety of benefits and services.

And as always, there are cons associated with this type of coverage,

  • Longer waiting period: Some long-term insurance policies have a waiting period before coverage, which disadvantages people needing immediate coverage.

  • Inflexible coverage: Once a long-term insurance policy has been purchased, it may be challenging to change or adjust the policy to meet life’s ever-changing needs.

  • Complex policy terms: Long-term insurance policies can have complex terms and conditions that may be difficult for some policyholders to understand.

Ultimately, the pros and cons of short-term and long-term insurance rest on the policyholder's specific needs and circumstances.

Which type of insurance is best for you?

The choice between short-term and long-term insurance depends on your budget, risk tolerance, and coverage requirements.

For example, a healthy young individual may get by with a short-term insurance policy, as the risk of a significant health issue is low. 

However, suppose you’re older and have a pre-existing medical condition or bear more responsibilities like having a family. In that case, a long-term insurance policy may be a better choice, as the risk is significantly higher.

Tips to tipping the insurance scale in your favour

Comparing quotes from multiple insurance providers and negotiating with them is essential. This process of comparing helps get you the best deal on short-term or long-term insurance.

Comparing quotes helps you find the best coverage at the best price while negotiating can help you get a more suitable policy and lower premiums.

If you want the best deal on short-term or long-term insurance, there are several tips you can follow to ensure that you are getting the best protective plan at an affordable price. 

  1. Be on a need-to-know basis: Before shopping for insurance, ensure you know what coverage you need, which will save you time and help you compare quotes and coverage options more effectively.

  1. Shop to your heart’s content: Don't just accept the first quote you receive from an insurance company. Instead, compare quotes from multiple insurance companies to ensure you get the best deal possible.

  1. Negotiate like a pro: Don't be afraid to negotiate with insurers; you are paying them for a service. If you have received a higher quote than expected, ask the insurance company if they can lower the premium.

  1. Ayo Technology: Use insurance comparison websites, like Hippo, and mobile apps to compare quotes and coverage options from multiple insurers. Websites like Hippo can make it easier to find the best deal and can help you to save time and money.

  1. Double up: If you require short-term and long-term insurance, consider bundling your policies with the same insurance company. This practice often results in discounts and lower premiums.

  1. Bump that excess up: A higher excess means a lower premium, but it also means that you will have to pay more out of pocket if you need to make a claim.

Therefore carefully consider your risk tolerance and budget when deciding on your excess of choice.

  1. Renew your coverage regularly: Review your coverage regularly to ensure adequate protection. Consider switching insurers if your needs have changed or you have found a better deal elsewhere.

It is imperative to update your insurance coverage regularly to ensure adequate protection. 

Your needs and circumstances will change over time. 

Therefore, your insurance coverage should be able to accommodate these changes. For example, if you have a new baby, you may need to increase your life insurance coverage to protect and provide for your new and expanding family in the event of your death. 

Where technology and insurance collide

In recent years, you’d be hard-pressed to find a sector that technology’s massive reach hasn’t touched, and the insurance industry is no exception.

Technology has played a significant role in transforming how several insurance industry processes are conducted.

Technology has made shopping for insurance more straightforward and convenient by allowing consumers to compare quotes and coverage options from multiple insurers quickly and easily.

One significant change attributed to technology’s influence is the introduction and popularisation of online insurance comparison websites and insurance brokers. 

These modern tools allow consumers to compare quotes and coverage options from multiple insurers and to choose the best insurance policy for their needs and budget.

In addition, they also provide easy-to-understand information about insurance coverage, which can help consumers make informed decisions and avoid unnecessary confusion.

Another meaningful way that technology has impacted the insurance industry is through mobile apps and online portals. 

These allow policyholders to manage their insurance policies and make claims without spending hours on a call with call centre agents or visiting their insurance provider’s nearest office.

Furthermore, policyholders now have the freedom to access information about their policies, like the coverage details, premiums, and claims history, all through their smartphones or computers.

The most important feature that the use of technology has introduced is the use of data analytics and artificial intelligence (AI). 

Data analytics and AI technologies help insurers assess risk more accurately, resulting in lower consumer premiums. 

Insurance providers can also use this technology to improve the claims process, making it faster, less stressful and more efficient for policyholders.

Technology has profoundly impacted the insurance industry, which you should use to your advantage when shopping for either short-term or long-term insurance.

Review and redo

Regularly reviewing and updating your insurance coverage is vital to ensure adequate protection. This process helps ensure that you have sufficient protection in any unforeseen circumstances. 

Regularly reviewing your insurance coverage is an essential aspect of personal financial planning. 

The steps you need to take when you want to ensure that you are accurately reviewing your policy go as follows:

  • Evaluate and assess your changing needs:  Begin by assessing your current life situation, including any significant changes in your health, assets, or family structure. 

Your insurance needs will change over time, so it’s only fitting to regularly assess your coverage to ensure you have the protection you need. 

This information will help you determine what kind of coverage you need.

  • Review all current policies: Make it a habit to review your insurance coverage annually to ensure that you have the protection you need. 

Review your insurance policies, including the policy wording, terms and conditions, coverage amounts, and excess amounts.

  • Compare quotes: Regularly compare quotes to ensure you get the best value for your money. You might find that other insurance options may better meet your needs. 

Comparing quotes from multiple insurers is an excellent way to ensure you get the best insurance coverage.

  • Update your coverage: Regularly reviewing your financial situation helps you know what you can and can’t afford, and from there, you can make an informed decision.

For instance, an increased income allows you to increase your coverage to reflect your increased assets.

Afterwards, you can make the necessary changes to your coverage, such as increasing or decreasing the coverage amount, updating personal information, or adding or removing policies.

By reviewing, redoing and updating your insurance, you can ensure you have the proper protection to meet your needs. This peace of mind can help you feel more secure and protected.

For the long and the short of it... Get a quote!

Pineapple (FSP 48650) is underwritten by Old Mutual Alternative Risk Transfer Insure Limited, a licensed Non-Life Insurer and authorised FSP. T&Cs apply. Premium is risk profile dependent.

Please Note: The information provided above is for informational purposes only; you should not construe any such information as legal or financial advice.

Team Pineapple

Team Pineapple comprises our company’s top talents, who are dedicated to creating clear, high-quality content on essential vehicle insurance topics. This diverse group, including actuaries, accountants, data scientists, and insurance professionals across South Africa, collaborates to produce enlightening and empowering articles.

Each piece is thoroughly researched, factually accurate, and rigorously reviewed to ensure quality.

*We say they’re the finest because we want them to keep writing for us!

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Please Note: The information provided above is for informational purposes only; you should not construe any such information as legal or financial advice.

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