What is Short-term income protection?10 May 2017
Short-term income protection (STIP) is a form of income protection (IP) that pays out for a set period of time, usually between 12 to 24 months, or sometimes up to five years depending on the provider. Because it pays out for a shorter period than full IP, the premiums are considerably cheaper.
There are a number of different types of Short-term income protection products available on the market. The best tend to be those that offer exactly the same quality of cover as an insurer’s full IP policy, the only difference being the length that it will pay out for.
You can also take out more targeted types of Short-term income protection products which, rather than look at protecting your entire income, look specifically at covering debts such as your rent or mortgage payments. This can be very cost-effective way of ensuring key elements of your outgoings are covered, whilst tightening belts and using savings could cover the rest.
These types of policies can come with extensive exclusions that prevent you from making a claim, such as stress or back related conditions, the most common reasons why people are unable to work. Good quality STIP should cover you for practically any reason you are unable to work due to ill health so it is worth checking the small print. Any medical conditions you have suffered recently may be excluded for a set period of time.
It is also important to understand under which occupation class you are being covered. With both full IP and STIP cover is generally based upon your occupation. Someone that has a deemed high-risk job, such as a manual worker, will pay more for cover than someone with a low-risk job, such as an administrative office worker.
You can be covered against being unable to do your own job (the most comprehensive and easily claimed on cover), being unable to do any job, or being unable to complete a list of tasks such as walking, bending or lifting. Some insurers offer better terms for certain occupations than others, so if the cost of one policy seems to differ greatly to another then double check which occupation class is being offered. The cheapest cover is not always the best value for your needs.
The cost of both full IP and STIP can be cut by opting for a longer deferred period, ie the length of time you are able to wait before a claim is paid. This should be set to kick in when either employee sick benefits or any savings you have are no longer able to support you. Cover can be set to pay out from just a few weeks up to 12 months of being unable to work. The longer the deferment period is set for the cheaper your premiums will be.
With both IP and STIP, cover against the risk of being unemployed is not included, although it is possible to bolt on cover to your plan if this type of insurance is important to you.
STIP is a high quality alternative to full income protection if you are unable to afford long term cover. Having cover in place to protect your income short term is hugely preferable to having no cover in place at all. It is also possible to review your insurance over the years and switch to a full income protection policy in the future if your circumstances change.
Anyone who is interested in taking out long or short term income protection should always seek specialist advice. An adviser can talk you through all of the options available to fit the highest quality cover possible to your budget, and help you make the right decision.