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Short Term Income Protection

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20/03/2022
18 mins

Short Term Income Protection covers you financially should you suffer an accident or sickness. It can start replacing your lost income if an illness or injury prevents you from working for more than one week.

It pays out a monthly income to allow you to keep up with your everyday expenses if you can’t work, from your rent / mortgage to groceries and utility bills.

  • You can protect up to 70% of your gross (pre-tax) earnings.
  • Short-term cover can pay out a claim for a maximum of 1, 2 or 5 years per illness / injury per claim.
  • In 2018, leading insurers Liverpool Victoria and Legal & General both paid 95% of valid Income Protection claims.

It is important to note where budget suffices we would tend to recommend long-term cover, which will pay out a monthly income until retirement if necessary.

With Liverpool Victoria’s average claims length being 7 years and 7 months the last thing we would want to happen is have a client claim on a short term policy only to come to the end of the claim and still be unable to work.

EXPERT OPINION 🤓
According to consumer group Which?, Income Protection is the one policy every working adult should consider.

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Long Term vs Short Term Income Protection Insurance

When looking for Income Protection, it tends to be more common and easier to comprehend suffering a short-term injury such as a broken leg.

Naturally, such an injury wouldn’t keep someone off work for very long and so people think that they would only ever need to claim income benefits for a short period of time.

But while the loss of 2 or 3 months of earnings would be a massive inconvenience for most households, the loss of 2 or 3 years of earnings could be financially disastrous.

The reality is that the real financial risk comes from more serious illness or injury and these occur more frequently than most people believe.

Is Short-Term Income Protection Sufficient?

With leading insurer Liverpool Victoria’s average claim lasting 7 years and 7 months you can see how if you only had short term sickness insurance that the claim payments would cease many years before a full recovery.

If budget suffices opting for Long Term Income Protection will ensure you can continue to claim for as long as it takes to recover or until you reach retirement.

What Does Income Protection Cover?

Short-Term Income Insurance provides a monthly payout should you suffer:

  • An accident or bodily injury
  • Sickness or a period of ill health.

The best Income Protection covers you in your own occupation; this means you’ll be able to make a claim if something stops you from doing your specific job role.

What Doesn’t Income Protection Cover?

There are very few exclusions on Income Protection policies. Most will cover you for anything that medically prevents you from doing your job subject to your pre-existing medical history.

General exclusions may include any illnesses or injuries which have occurred as a result of criminal activities, alcohol or drug abuse / misuse or travel to countries facing political instability

Pre-existing medical conditions
If you have a pre-existing health condition it is worth popping us a call on 02084327333 as no two insurers are the same and each has their own position on whether they will be able to provide cover.

We have direct access to the underwriters at all the top UK insurers which enables us to negotiate the best possible terms for you.

In general more serious pre-existing conditions are likely to be excluded, other conditions could be covered for an increased premium and less serious conditions may be included on standard terms.

Do I Need Income Protection?

Being out of work due to illness or injury is more common that many people might realise.

For instance, 14.7% of the over-55s questioned by Drewberry’s Protection Survey said that they’d needed to be out of work for at least 6 months due to illness or injury at some point during their career – equivalent to 1 in 6 people.

Risk Of Long Term Illness

Meanwhile, statisticians at the Office for National Statistics labelled more than 2 million people as ‘economically inactive’ due to long-term sickness in the 3 months to January 2019.

With sickness absence from the workplace comes worries about how you’re going to afford day-to-day living expenses, from paying your rent / mortgage to feeding your family.

Some people are lucky in that they have savings to rely on or get generous sick pay from their employer, but this isn’t the case for everyone.

Lack Of Savings & Government Support

2 in 5 people have no more than £1,000 in cash savings to fall back on in the event of illness or injury. Given the average UK household spends upwards of £500 a week, this is a problem.

Even for those of us who do get sick pay from an employer, it often is time-limited and may only be Statutory Sick Pay at £95.85 per week.

Government benefits can help, but given that the main incapacity benefit, Employment and Support Allowance (ESA) is worth just £74.35 per week, help is limited from the state also.

While other state benefits are available, these depend on your circumstances and the nature of your disability to qualify for them. Even where you are eligible, they’re unlikely to wholly replace pre-incapacity household expenditure.

It’s here Income Protection can step in to fill the gap left and help keep you afloat during such a difficult time.

Who Needs Income Protection?

Which? Money’s statement that Income Protection is the one protection policy all working adults should consider is one we wholeheartedly agree with. However, there are some groups of people who are particularly vulnerable and therefore we feel would benefit the most from cover.

Contractors, self-employed and those with limited savings or sick pay are the most vulnerable. Those who work for themselves either through a limited company or as a sole trader lack any form of employer support and without sickness insurance would need to rely on their savings.

How Does Short Term Income Protection Work?

Short-Term Income Protection works by providing a monthly payout for a limited period if you can’t work due to accident or sickness. Long-term cover, meanwhile, will protect you up until your retirement date if you can never work again.

A short term policy is usually cheaper than long-term cover because the payout period is limited per claim. For this reason, it’s often known as Budget Income Protection or Low-Cost Income Protection.

When setting up Income Protection, there are four major decisions you’ll have to make which will have an impact on the cost of cover:

  • Sum assured
    This refers to how much you’ll need as a benefit each month. You can typically cover between 50% and 70% of your gross (pre-tax) income depending on your insurer. While going for the maximum may seem tempting, it will push up the cost of cover so it may be sensible to consider covering only your essential expenditure.
  • Your deferral period
    Length of time you can wait before you need to cover to kick in. Think about how long you could comfortably rely on savings / sick pay / other resources and consider setting your deferred period for that length of time. A longer deferred period will reduce the cost of cover compared to a shorter one, but very long deferred periods aren’t always best suited to the shortest-term policies.
  • Policy cease age
    How long your policy will last for. Most Sick Pay Insurance policies offer cover right up to state retirement age and beyond – as far as age 70 – but the higher your policy cease age the more expensive your protection will be.
  • Your payout length
    Short-term Income Insurance offers cover for a maximum of 1, 2 or 5 years per claim.

Your Premium Options

  • Reviewable premiums
    The insurer can ‘review’ these as they see fit for a variety of reasons, from poor financial performance to underlying economic factors to a spike in claims in a given year. While these premiums usually work out cheaper at the start, they can be reviewed with time, meaning you may not know how much you’ll pay for cover from one year to the next.
  • Age-banded premiums
    These premiums also start out cheaper but rise over time. However, unlike reviewable premiums the insurer can only increase these by a preset amount each year laid out in your policy documents and the rises you’ll face are solely linked to your age and the increased risk of you claiming as you get older.
  • Guaranteed premiums
    Guaranteed from the start for the life of the policy. These usually work out a little more expensive initially but are then fixed throughout the policy’s term. This can save money across the life of the policy, especially if you take out cover when you’re young and healthy right up until retirement as premiums are locked in from the point the policy goes live.

Not all premium types will be available for short-term plans. For instance, 1 year policies may only be available with age-banded or reviewable premiums depending on your circumstances.

Your Definition of Incapacity

Your definition of incapacity will determine how incapacitated you are required to be before you can claim on an Income Protection policy. There are three definitions of incapacity to consider when setting up Income Protection:

Own Occupation

You’ll be entitled to your monthly income as long as your injury or illness prevents you from working in your specific job role.

For example, an architect with a hand injury wouldn’t be able to complete technical drawings and so could generally make a claim.

Suited Occupation

Policies that use this definition of incapacity mean that in order to claim benefits, you have to be unable to undertake your current job role or any other job where you may have experience or education to perform.

So where an architect with a hand injury may not be able to do their own job, they may not necessarily be able to claim under a ‘suited occupation’ definition because have the skills and experience to do another job role suited to them.

Any Occupation / Work Tasks

This definition of incapacity means you can only claim if you’re so totally unfit to work that you can’t work in any occupation / perform a set number of tasks required at most basic jobs, such as signing your name or typing.

This definition of incapacity is the most difficult to claim on and in general we’d recommend it is best avoided.

Beware of Payment Protection Insurance!

Sometimes Payment Protection Insurance is advertised as Short Term Sickness Insurance, but the two insurances are very different. That’s why it is so important that you take a closer look at the terms of your policy before taking it out.

The Difference Between Payment Protection And Short Term Income Protection

At first, Payment Protection and Short Term Income Protection can seem confusingly similar because they both cover you for accidents and sickness and pay out for a limited time.

However, there are distinct differences to keep an eye out for that mean PPI generally provides inferior cover for incapacity.

  • PPI will usually only cover you under a Suited Occupation or Any Occupation definition of incapacity while most Short Term Income Protection policies will offer Own Occupation cover.
  • Payment Protection often has automatic mental health and back exclusions. This isn’t the case for Income Protection (unless you have a pre-existing condition), where back problems and mental health issues make up the majority of claims.
  • Many of the the top Income Protection policies offer a range of premium types to choose from, including guaranteed premiums. PPI, on the other hand, most commonly offers reviewable premiums which are reviewed annually and could rise unpredictably each year.
  • Short Term Income Protection offers cover linked to your earnings, paying out benefits worth a percentage of your income before tax. PPI is more commonly tied to a loan, such as your mortgage. This means that when you claim on a Payment Protection Insurance policy, the benefits that you receive will typically only be enough to cover loan payments and will not help you afford all of your other financial obligations.
  • PPI is not usually medically underwritten, requiring no medical information from you at the point of application. As such, you don’t know what will and won’t be covered based on your medical history if you need to claim. Income Protection involves full medical underwriting, so you know exactly what you’re covered for from the outset.

How Much Does Short Term Sickness Insurance Cost?

The cost of Sickness Insurance depends on the above policy factors, as well as a range of personal factors, such as:

  • Your age
    The older you are at the start of the policy, the higher the cost of Income Protection
  • Any health conditions you may have
    An insurer may look to increase the premiums if you have a health condition or simply exclude it outright
  • Your smoker status
    Smokers are more likely to get ill, and to become seriously ill, due to the detrimental health impacts of smoking.

Average Cost of Income Protection Cover

In the below table, we’ve laid out the average monthly cost of Short Term Accident and Sickness Cover.

To work out the cost of cover, we’ve assumed:

  • The individual is a healthy employed office worker
  • They’re a non-smoker
  • They want a benefit of £2,000 a month
  • They’re looking for an 4 week deferral period
  • Their cease age will be age 65
  • They’re looking at cover that will protect them for 1, 2 or 5 years per claim

The Income Protection quotes were generated from our instant online quote engine and represent the cheapest policy that matches the above criteria from across the entire UK market.

1 Year

2 Years

5 Years

Age 25

£25.52

£26.88

£31.91

Age 35

£26.00

£26.26

£35.56

Age 45

£34.00

£37.13

£41.79

Income protection quotes accurate as of 2022

How Would I Make a Claim?

Firstly you suffer a health problem that prevents you from working and you take leave to recover.

Contact Your Insurer
Once you are off work you contact your insurer’s claims team and provide them with a completed claims form, evidence of your condition and any other paperwork necessary to make the claim.

Wait Out Your Deferred Period
You wait out your policy’s deferred period. During this time you may be claiming sick pay from your employer or using savings to cover your typical monthly expenses.

If you reach the end of your deferred period and you are still not fit to return to work, your insurer will begin paying out monthly benefits directly into your bank account for you to spend on bills, loan payments, or household essentials.

Receiving Your Monthly Benefits
With Short Term Income Protection, you will be able to claim these benefits up to your policy’s maximum payout term. This is usually set at 1, 2 or 5 years. Your insurer will stop paying out benefits for your claim if you return to work, if you reach the end of your payout term, or if you reach your cease age / retirement age.

The payout term applies per claim on your policy. Provided you continue to pay your premiums, you can can claim again in the future for a different illness or injury, again for a maximum of 1, 2 or 5 years (depending on your policy).

You can claim as many times as you need to on a short-term Income Protection policy up until your policy’s cease age.

Neil’s Cancer Claim With British Friendly

Neil is a client of Drewberry and took out an Income Protection policy with British Friendly. He was a member for 4 years before he needed to claim.

He felt sick and had pains in his stomach. After consulting his GP and having some further tests Neil was diagnosed with stage 2 Bowel Cancer and needed to make a claim.

🤕 Read More About Neil’s Claim

Compare Best UK Short Term Income Protection Providers In 2022

There are a vast range of UK income protection providers we work with. It is very important to do your research and compare a range of quotes to ensure you obtain the most cost-effective cover for your circumstances.

Some of the most popular providers we work with include:

In addition to the expert insurer reviews we have written above we have also created a guide to the best income protection which is worth reading before buying your policy.

If you get stuck and need any help, don’t hesitate to give us a call on 02084327333 or email help@drewberry.co.uk.

Get Short Term Income Protection Quotes & Expert Advice

When taking out cover it is important not to confuse Short Term Income Protection with Payment Protection Insurance.

To ensure that you’re getting the right policy or if you have any other questions, please don’t hesitate to get in touch today.

Why Speak to Us?

We started Drewberry™ because we were tired of being treated like a number.

We all deserve a first class service when it comes to issues as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

If you need some help please do not hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.

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If you are unhappy with our service, we have a complaints procedure, details of which are available upon request. If you are unhappy with how your complaint has been dealt with, you may be able to refer your complaint to the Financial Ombudsman Service (FOS). The FOS website is www.financial-ombudsman.org.uk.

Drewberry Ltd is registered in England and Wales. Companies House No. 06675912

Drewberry Ltd registered office: Telecom House, Preston Road, Brighton, England, BN1 6AF. Telephone 0208 432 7333

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Limited, which are authorised and regulated by the Financial Conduct Authority.

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