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.
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.
According to consumer group Which?, Income Protection is the one policy every working adult should consider.
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.
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.
Short-Term Income Insurance provides a monthly payout should you suffer:
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.
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.
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.
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:
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 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:
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.
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.
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.
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 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.
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.
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.
We typically promote Income Protection over PPI for a variety of reasons, including greater breadth and depth of coverage and the fact that Income Protection will insure a percentage of your earnings rather than just covering loan payments.
Independent Protection Expert at Drewberry
The cost of Sickness Insurance depends on the above policy factors, as well as a range of personal factors, such as:
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 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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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 email@example.com.
Director at Drewberry
Very helpful from start to finish. Talked through all the points and gave great advice.