Short Term Income Protection

It is very important to note that most insurers have limits on the maximum amount of cover you are able to insure. As will as limiting the maximum percentage of your salary you can insure, most insurers will also have a maximum benefit they are willing to pay.

For example, Aviva are only willing to cover up to 55% of your gross salary, but the maximum that they offer in terms of benefits is £20,000 per month. On the other hand, British Friendly are willing to cover as much as 70% of your pre-tax earnings, but the maximum benefit they are willing to pay out is only £3,750 per month. You’ll need to choose your insurer to match the benefits you’re likely to need.

When choosing the appropriate level of cover, it’s best to avoid the temptation of choosing the maximum amount available. More cover means higher premiums, and you may not need that much cover.

The best method of deciding the appropriate level of cover is to compare your monthly salary to your monthly expenditure and try to match that amount with your Short Term Income Protection benefits.

Sam Barr-Worsfold
Independent Protection Expert at Drewberry

The Deferred Period is the amount of time after going off work before the plan will start to accumulate benefit. For example, with a 30 day deferred period the plan would start accumulating benefit after 30 days. It makes sense to set the deferred period in line with your company sick pay entitlement (if any) and level of savings as the monthly premiums come down significantly as the deferred period is extended.

A policy’s cease age is the age you decide that your policy will officially end, which is typically set to be as close as possible to your desired retirement age.

Regardless of when you set your cease age, your policy will end when you retire and are not longer earning to support the benefit. It’s worth noting that if you have savings or other vehicles, such as pensions, you feel you could fall back on in later life you may be able to reduce your policy’s cease age to younger than your retirement age and notably reduce premiums.

With Short Term Income Insurance it is possible to include an option where the level of benefit rises over time with inflation (usually measured by the Retail Price Index). This is called Indexation or Index Linked Cover. Including this option means that the real value of your cover won’t be eroded by inflation over time.

It is important to note that the both the monthly benefit and your monthly premiums will rise each year in line with inflation. Some insurers may also tack on an additional increase to your premiums when your cover increases, which you will need to look out for when you consider index linking your policy.

Michael Barrow
Independent Protection Expert at Drewberry

Not many people are aware that there are different types of premiums that you can choose from when you take out Short Term Income Insurance, but the types of premiums you choose can have a dramatic effect on the cost of your policy and how your premiums change over time.

Level Guaranteed Premiums are set when you first take out your policy. These types of premiums won’t change for the entirety of your policy’s life providing your cover is not index linked and you do not increase your cover later on.

Age Banded Premiums will increase at a predictable rate as you age. These types of premiums will either increase at a fixed rate or they will follow a preset ‘premiums table’.

Reviewable Premiums are assessed on an annual basis and adjusted to match your circumstances. You age, health and claims history will all affect how your premiums are priced as well as any changes in tax or the insurer’s annual financial performance.

At Drewberry, we recommend that you steer clear of Reviewable Premiums whenever possible. Because these premiums are influenced by external factors as well as changes in your personal situation, increases can be uncontrollable and happen unexpectedly.

Egle Blusiute
Independent Protection Expert at Drewberry