Short-term income protection – choosing a policy
Short-term income protection, also known as STIP, can help you keep up with your rent or mortgage payments and other outgoings if you are made redundant or are too sick to work for a short period of time. Read more to find out how you can protect yourself in the short term. You might decide to get professional advice from a financial adviser to help you choose.
Short-term income protection policy features
STIP replaces your income if you become unable to work because you’re ill or injured and this results in a loss of income, or if you’re made redundant.
When taking out a policy, you need to be sure you know what you want to cover (e.g. your rent, mortgage, your income, bills…) and that the policy matches your circumstances.
In this guide we’ve highlighted the main parts for you to think about.
Length of pay out
A policy will pay out up until the expiry date of the policy, until you go back to work or until the end of the pre-agreed fixed period (e.g. two years).
The shorter the fixed period the less expensive the policy will be.
You might be able to claim many times within the same policy if you’re off work repeatedly due to ill health.
Amount of pay out
You can choose a policy which pays out a set amount to cover particular bills and outgoings, or you can cover a percentage of your take home pay.
Factors that influence the cost
- Job – the more manual or specialist the higher the cost
- Health (your current health, your weight, your family medical history)
- Whether you smoke or have previously smoked
- The amount you want to cover
- The excess waiting period before you’re paid (deferred period) (see When does it pay out? below)
When does it pay out?
The amount of time you are off sick before your policy pays out is called the ‘deferred period’ (the excess or waiting period).
You might decide that, if you can’t work, you wouldn’t need payments until:
- Your savings run out
- Your statutory sick pay runs out (six months)
- Your employer’s sick pay runs out, if they support you for a little longer, might be twelve months
So, if you have six months’ worth of sick pay and another six months’ worth of savings, you might defer your claim for a year.
Or you could defer for just six months and keep your savings. The longer your waiting period, the cheaper the premium will be.
The most common waiting periods are 4, 13, 26 weeks and a year.
If you have other continuing income or payments from other income protection insurances, these might reduce the benefit you receive from your policy in the event of a claim.
Check the policy conditions to check whether or not this applies when you’re considering which policy to buy.
Claims support services
Some policies include claims support services which provide help and support, such as helplines and information about your medical condition or legal advice in the event of a claim, to help return to work as soon as possible.
Hospitalisation benefit is a cash payment under some policies for each night that the policyholder spends in hospital typically after the first seven days.
It’s useful to get expert advice. Most complaints about STIP are about whether or not a consumer meets the definitions in their policy.
Advisers can take you through the details of the various policies available and make sure you pick the right one.
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