Short Term Income Protection

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 2018 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.

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.

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.

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

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.

Compare Best UK Short Term Income Protection Quotes

	AIG AIG is one of only a handful Income Protection providers to offer cover for individuals with type 2 diabetes. It is also willing to offer diabetics guaranteed premiums and will not exclude diabetes in its policy, unlike other providers. Maximum coverage: 60% of the first £30,000 of your salary / 55% of salary between £30,000-£100,000 / 45% of any salary £100,000+ Deferred periods: 4 / 8 / 13 / 26 / 52 weeks Maximum entry age: 54
	Aviva Aviva covers all policyholders with an own occupation definition of incapacity and, if you choose to return to work in a different occupation until you are well enough to return to your pre-incapacity occupation, Aviva will top up your reduced income with Back to Work Benefits. Maximum coverage: 55% of your pre-tax salary, up to a maximum of £240,000 per year. Deferred Period: 4 / 8 / 13 / 26 / 52 / 104 weeks (104 weeks is the longest available deferred period for UK Accident & Sickness policies) Maximum entry age: 59
	British Friendly British Friendly gives access to its Mutual Benefits program, which provides rewards such as vouchers for high street shops, discounted fitness tracking devices, emotional support services and online legal services. Maximum coverage: 70% of your pre-tax salary, up to a maximum of £45,000 per year. Deferred periods: Day 1 / 1 / 4 / 8 / 13 / 26 / 52 weeks Maximum entry age: 64 One of the few insurers that will cover pilots on an own occupation basis
	Cirencester Friendly Cirencester Friendly provides you with a range of additional benefits and services, including a hospitalisation benefit and a Friendly Voice service that provides you with a personal nurse that you can contact for advice and emotional support. Maximum coverage: 65% of your pre-tax salary, up to a maximum of £65,000 per year. Deferred periods: Day 1 or 4 / 8/ 13 / 26 / 52 weeks Maximum entry age: 54
	The Exeter The Exeter is one of the few UK insurers that is able to offer own occupation cover to workers in higher risk occupations, although such policies only offer age banded premiums. Maximum coverage: 60% of your gross salary up to the first £100,000 and 40% of any additional income. Deferred periods: Day 1 / 1 week / 4 weeks / 8 weeks / 13 weeks / 26 weeks / 52 weeks Maximum entry age: 59
	Legal & General L&G Accident & Sickness Insurance comes with a free life cover element that pays out a maximum of 12 times your monthly benefit if you pass away while the policy is in force. Maximum coverage: 60% of your annual income before tax, up to a maximum of £200,000 per year. Deferred periods: 4 /13 / 26 / 52 weeks Maximum entry age: 60
	Liverpool Victoria LV Accident & Sickness Cover offers free access to unique LV Doctor Services, which include fast access to remote GP services, second opinion services and private prescriptions for policyholders and their children up to the age of 16. Maximum coverage: 60% of your annual income before tax, up to a maximum benefit of £12,500 per month Deferred periods: 1 month / 2 months / 3 months / 6 months / 12 months Maximum entry age: 59
	Royal London Royal London Accident & Sickness Insurance can include Fracture Cover, which pays out a lump sum of between £1,500 and £4,000 on top of any benefit you’d receive for being off work if you receive a fracture of a specified body part Maximum coverage: 65% of the first £15,000 income and 55% of the remainder, up to a maximum of £250,000 per year Deferred periods: 4 / 8 / 13 / 26 / 52 weeks Maximum entry age: 59
	Shepherds Friendly Shepherds Friendly allows you to apply to suspend cover and premium payments under your plan for a minimum continuous period of 3 months and up to a maximum continuous period of 24 months. This is known as ‘Career Break’ option. Maximum coverage: 70% of income up to £49,000 per year Deferred periods: Day 1 / 1 week/ 4 weeks / 8 weeks / 13 weeks / 26 weeks / 52 weeks Maximum entry age: 60
	Vitality Vitality provides a unique offering. While the core of its policy is similar to other providers’ offering, it also offers a unique set of additional benefits to those who participate in the Wellness / Optimiser programs that can include policy discounts and rewards. Maximum coverage: 60% of your earnings capped up to £2,500 per month and 50% of any earnings above, up to a maximum of £16,666 per month Deferred periods: 1 week / 1 / 3 / 6 / 12 months Maximum entry age: 59

Get Short Term Income Protection 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 and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.

• There is no fee for our service
• We are independent and impartial
  Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
• We’ve got bargaining power on our side
  This allows us to negotiate better premiums for you than you going direct yourself.
• You’ll speak to a dedicated expert from start to finish
  You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
• Benefit from our 5-star service
  We pride ourselves on providing a 5-star service, as can be seen from our 3118 and growing independent client reviews rating us at 4.92 / 5.
• Gain the protection of regulated advice
  You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
• Claims support when you need it the most
  You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.

Taking out Income Protection can be a bit of a minefield.

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

Tom Conner
Director at Drewberry