Did you know that income protection can be split up into two different policy types – short term and long term?
Both types will pay out in the event that you become unable to work due to serious illness or injury and can pay out up to 70% of your usual income.
But what’s the difference between long and short term and how do you choose between the two?
The main difference between the two is how long your payment period will last, with short term policies paying out for up to two years and long term policies paying out up until retirement.
Have you ever thought about protecting your income to ensure your family’s future stability?
Award-winning life insurance broker,
Reassured, provide their top 5 income protection considerations below…
Protection from serious illness or injury only
Long term income protection will provide financial security if you can’t work due to illness or injury.
In the event that you’re diagnosed with an illness or sustain a serious injury that prevents you from working, you’ll be able to make a claim on your policy.
Income protection sales have increased insignificantly post the COVID-10 pandemic as people seek to provide their loved ones financial future.
It’s commonly believed that income protection will provide protection in the event of unemployment, but a standard income protection policy
doesn’t include this. Shorter term, or budget, protection policies such as Accident, Sickness and Unemployment (ASU) will offer this type of cover.
While these policies can seem tempting due to the inclusion of unemployment cover, when it comes to making a claim these budget policies can be much less straightforward.
Long term income protection doesn’t come with a set list of illnesses or injuries that you can claim for, so you’ll be able to claim for anything that leaves you unable to work.
However, you’re not covered for any pre-existing medical conditions, any self-inflicted injuries or any illnesses or injuries that are as a result of drug or alcohol misuse.
Protection up until retirement
As the name suggests, long term income protection offers longer term cover and you can even choose to be covered all the way up until retirement (if you state this during the application process).
This means that if you develop a serious injury or illness which prevents you from working again, you can receive income protection payments for the remainder of your working life.
These payments can help to provide much needed financial support when you need it the most and can help you and your loved ones to take care of:
Bills and utilities
Alternatively, it’s also possible to receive payments until you make a full recovery and return to work, until your payment period comes to an end or until your policy expires.
Ideal for self-employed workers
Research suggests that self-employed workers are more likely to be affected by financial crisis than those who are employed by an employer.
For example, research from
Simple Tax, shows that during the ‘credit crunch’ of 2010 – 2011 the gross earnings for 22 – 30 year old self-employed workers dropped from over £20,000 to under £15,000.
Additionally, the recent 2020 Coronavirus pandemic has had many self-employed workers seeking out financial protection to protect their livelihoods.
This is because self-employed workers don’t benefit from a sick pay scheme from an employer, meaning if they become unable to work, they need to find their own forms of finance to keep themselves afloat.
For this reason, long term income protection can be better suited to self-employed works than short-term income protection.
As we discussed above, long term income protection has the potential to pay out to you until you reach retirement age, thus providing cover for your whole working life and acting as a form of sick pay – relieving you of the need to dip
into your own personal savings.
Choose from a range of policy terms
Not only do you have the flexibility to choose whether you’re covered in the short or long term cover with income protection, but you’ll also get to choose various other policy terms, such as:
Length of your deferred period This is the time in between your first sick day and when your payments will begin. This will be outlined during the application process and in general, can be between 4 – 52 weeks. How long you your deferred period will be will often depend on your personal circumstances and whether you have other forms of finance available, such as:
Sick pay (either statutory or a company scheme)
Financial support from a spouse
Income from a second job
Length of your payment period
This will also be specified during the application process and is the length of time you’ll receive your income protection payments until.
Commonly this could be 12 months, 24 months, 60 months or it could be up until you reach retirement age with a long term policy.
Your definition of incapacity
This will outline what you are covered for. You’ll typically get to choose between:
Own occupation – you can make a claim if you are too ill or injured to do your own job
Suited occupation/suited tasks – you can make a claim if you can’t do your own job or any jobs that suit your skills and experience
Any occupation – you can claim if you can’t do any job
The level of risk involved in your occupation will help to dictate which option you can secure. In regards to income protection, insurers judge occupations by ‘class groups’ based on risk.
For those with jobs that are considered to be low risk, such as administrative jobs or jobs based in an office, you should be able to secure an own occupation policy – allowing you to claim when you’re unable to fulfil your specific job
However, those with higher risk jobs, such as those in the construction industry, may struggle to secure an own occupation policy due to the level of risk involved in their job.
In this instance, they may have to take out a suited tasks or any occupation policy. Although, with the greater level of risk, it’s possible that the type of illness or injury sustained in these job roles may better match these definitions.
Premium payment type
When calculating the price you pay for your premiums, income protection providers will consider the following personal information:
As well as this, and other details about your policy (such as the ones mentioned above), you’ll be given a choice of premium payment types which will help to determine how much you’ll pay for your cover. These include:
Guaranteed (stay the same throughout your policy so you won’t have to pay more than originally agreed)
Age banded (increase each year as you age so you may end up paying more for your cover. However, some insured won’t take your smoking status into consideration with this premium type so it can be an ideal option for those that smoke)
Reviewable (increase at the discretion of your provider so you may end up paying more for your cover)
Compare quotes to find the best deal
Comparing quotes is the best way to make sure you secure the best long term income protection policy to meet your needs. You could conduct extensive research on your own or use a comparison site to look through all the available options.
However, by doing this you won’t get a personalised service or the ability to ask the questions you need to establish what the right choice is. By going to a broker, like Reassured or Cavendish, you’ll be able to ask all of the questions you need and receive personalised and fee free quotes from the UKs leading providers.