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Short term income protection insurance

Short term income protection insurance

25 Mar 2021

If you are trying to save those pennies and would like to take out some budget-friendly protection, short term income protection could be an ideal insurance product for you to buy. As a cost-effective alternative to standard income protection, this product provides a much-welcomed safety-net should the unexpected happen.

Whilst short term income protection insurance is very similar to standard income protection, it works in a slightly different way. In this article, we’ll tell you a little more about it and how these two similar products differ. 

How does short term income protection insurance work?

Short term income protection is designed to pay out a monthly amount to help cover your outgoings if you are unable to work due to illness or injury. This is a specified percentage of your current gross income, usually between 50-70%. 

These payments are designed to cover your rent or mortgage payments, monthly bills, everyday living costs and/or any extra healthcare costs that you may run into. It’s totally up to you how you choose to spend your payout.

These payments begin once your deferral period has passed. The deferral period is the period of time that you decide on when taking out your policy. When deciding how long your deferral period should be, consider if you are eligible for any work benefits or if you have money in savings that you can fall back on to tide you over. Your deferral period could be 4 weeks, 4 months, or 12 months. You decide. The shorter your deferral period, the more expensive your monthly premiums will be. 

The difference between short term income protection and standard income protection

Sounds just like standard income protection, right? Yes, correct. Everything we have mentioned so far is applicable to both insurance products. They both cover you if you can’t work due to illness or injury, and both pay out regular portions of your salary.

Here’s the main difference though - you determine the length of time that a short term income protection policy will pay out for upon claiming. This is what makes it short term. Most commonly, short term income protection policies will pay out for a two-year period, but you can opt for one-year or even five-year periods with some providers. Whatever period you choose, once this period is up, your payments will come to an end. Your payments will also come to an end if you recover and return to work, pass away or reach retirement before the end of this period.

This differs from standard income protection, where you receive your payouts until you either recover and return to work, pass away or reach retirement - however long that may take. Due to the potential of a much longer payout period, standard income protection is the more expensive product of the two.

That being said, it’s worth mentioning that if you claimed on your short term income protection policy and returned to work, only to become too ill or injured again a little later down the line to work, you would have another two-year claim period where you would once again receive your monthly benefit.

What does short term income protection cover?

Short term income protection covers the same eventualities as standard income protection. Unlike income protection, however, some short term income protection policies may offer cover for unemployment. These policies are quite hard to come by since the Coronavirus pandemic. Plus, there are many restrictive caveats on unemployment cover that could leave you paying into a plan that you may struggle to claim on, so it’s not always a good route to go down.

As with the majority of insurance policies, short term income protection comes with its exclusions. It will not cover you for self-inflicted injuries, any illnesses specified on your policy or pre-existing illnesses or conditions that you knew about before taking out your policy. It also won’t cover any accident or sickness resulting from drug or alcohol abuse. And remember - it won’t cover you during that all-important deferral period, so make sure you have something to fall back on during that time.

It’s important to make sure your protection insurance works for you and your budget. There’s no use protecting the life you love if you’re paying large chunks out of your monthly wage for it. There will almost always be a policy to suit anyone’s financial capacity - and short term income protection cover is the perfect example.

Need some help? That’s what we’re here for! Give LifeSearch a call on 0800 316 7253 or request a callback. Let’s chat about protecting your income at a price that works for you.

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