Do you need short-term income protection insurance (STIP)?
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 you’re too sick to work for a short period of time. Read more to find out how you can protect yourself in the short term.
What is short-term income protection insurance?
It’s designed to pay you an agreed monthly amount during a short period (usually 12 months) when you can’t work because of an accident, sickness or redundancy.
When you make a claim you have to wait a set number of days before you start to receive a monthly payment.
The payments continue until you go back to work, or – if you don’t return to work – for a maximum period (typically one or two years).
What isn’t covered?
There are a number of situations that STIP doesn’t cover.
- Self-inflicted injuries.
- Some illnesses – check the list in your policy
- Pre-existing conditions (illnesses you know about already)
- An accident or sickness resulting from drug or alcohol abuse
- Voluntary redundancy, seasonal unemployment and early retirement
- Redundancy, if you knew that it was on the cards when you took out the policy
- A period of time – normally 30 days – after you stop working and before your payments start. You’ll need to be able to manage yourself during this period (or choose a policy that starts paying from day one of you being off work).
Do you need short-term income protection insurance?
You could consider buying this type of insurance if you’ve got essential outgoings, such as rent or a mortgage, and:
- You’re self-employed
- You don’t have sick pay, redundancy pay or employee benefits to fall back on
- You can’t rely on savings to see you through a period of sickness or unemployment
Before you buy, make sure you look at the section on other types of insurance to consider, to see if another product better matches your needs.
Who doesn’t need it?
If you could get by on your savings, sick or redundancy pay, then you might decide you have enough cover to tide you over in the short-term.
However, if you find yourself unable to work for longer you might begin to struggle.
An income protection product can offer cover if you end up out of work for longer.
The cost of short-term income protection insurance
If you can afford it, you could choose a policy with a longer benefit period.
The longest on the market at the moment is two years.
Monthly payments are calculated per £100 of cover and will typically range from 41p to £17 per month.
Other factors that influence the cost of your premium include:
- Your age
- The length of the benefit period (how long the policy will pay out for)
- The length of the waiting period (the period of time before your payments kick in)
- The cover you choose (in other words whether you opt for accident and sickness cover, or redundancy cover, or both)
Source: Defaqto (2011)
Other types of insurance to consider
Don’t mix up short-term income protection insurance and income protection insurance! Income protection pays out for a longer period of time, and usually only covers sickness or incapacity, not redundancy.
There are several different types of insurance you can use to protect yourself from money problems if you’re sick, injured or out of work.
Do you need income protection insurance? This covers a wider range of illness and disabilities, and gives regular payments until you recover enough to return to work.
Do you need critical illness insurance? This long-term policy provides a tax-free lump sum if you’re diagnosed with one of the serious illnesses covered by your policy.
Do you need payment protection insurance? Payment protection insurance will help you keep up with payments if you can’t work because you’re ill, had an accident or made redundant.
Do you need life insurance? As the name suggests, this form of insurance will pay out if you die.
Read our at-a-glance guide to find out more about the differences between protection products
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