Short term income protection
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Learn how to save money on income protection insurance with our special guide...
What is short term income protection insurance?
Things come along in all of our lives that we simply need, and don’t necessarily have all the funds to purchase them. We’re mostly talking about our homes and vehicles, which generally require a form of financing in order for us to ‘own’ them – whether that’s a loan, credit deal or a mortgage.
These tend to be the biggest investments we ever make, so protecting these assets should be a primary concern to any recent car or house buyer, or anyone else for that matter who’s just borrowed a sizeable sum of money to fund/bankroll a necessity, deal, project, business investment or anything else.
The thing is this – with the best will in the world, (seemingly unavoidable) things come along to test us throughout our life, from unexpected injuries, health scares and serious illnesses to sudden redundancies to name just a few. And as if these challenges aren’t difficult enough to deal with, then the added stresses of potential financial implosion won’t do anyone finding themselves in these predicaments any favours whatsoever.
Which is why it’s vitally important to ensure you have something to fall back on, a Plan B if you like, to help relieve some of the financial burden which is an unescapable by-product of losing your job (through redundancy) or not being able to continue your role (as a direct result of suffering from a serious illness/injury). Short term income protection insurance can be that Plan B.
Short term income protection insurance is essentially a get out of jail free card for those of us who might at one point find themselves overwhelmed (fiscally as well as emotionally) by an ungovernable situation arising out of the blue; and one which in an untimely fashion coincides with a period in your life where your habitual means to earn money is paramount. For example when you’re in the midst of a repayment term or agreed cycle in relation to a mortgage or personal/business loan, a circumstance where having short term income protection insurance in place to draw on would be priceless.
In effect the policy is one which is fundamentally designed to pay the policyholder a pre-arranged monthly amount during a short, transient passage of time – typically 12 months – when it’s a physical impossibility for you to work due to injury, illness or unemployment.
The nuts and bolts of short term income protection insurance are as follows…
Once you file a claim on the policy you start to receive a monthly repayment after a pre-defined number of days has passed, with which you can use to cover (or at least, go some way to covering) existing outgoing third party repayments (i.e. mortgage, loans, credit/store cards etc…)
In theory the payments continue until such time as the policyholder can return to a working scenario, be it after recovering from a career-suspending illness or injury or sourcing alternative new employment after being previously made redundant. Although typically spanning a period of 12 months on average, there are occasions when some short term income protection insurance providers will extend this to 2 years.
In terms of precisely what short term income protection insurance actually covers the policyholder against, it’s fair to say that predominantly that thing is unemployment; or rather a sudden and immediate cessation in your ability to earn money through a current salaried role, be that what it may.
You might not even be in the employ of someone else, as short term income protection policies are also in the business of protecting the temporary on-going financial interests of those running their own businesses. So if as a self-employed, freelancer or indeed, small business owner yourself you have to shut down your existing operations for an indefinite period of time due to unforeseen illness or injury, you can rest assured that a short term income protection plan will endeavour to make up the shortfall in cash flow so as to continue to cover monthly outgoings of various types and sums.
Worth pointing out that for the most part short term income protection payments WON’T pay-out to the policyholder for the first 30 days which immediately follow your termination of work, so you’ll have to ensure that you’re in a positon to compensate for this monetary shortfall in the interim period via alternative means. Having said that, there are a few policies which start paying out to policyholders immediately after a claim is registered, but be aware that premiums for these policies will be at the higher end of the scale.
Again, another factor which needs flagging up from the outset is that not all illnesses are covered by short term income protection insurance policies and it may be the case that yours isn’t.
Which is why it’s imperative that potential policyholders go through documentation with a fine toothed comb prior to signing anything off.
On a similar topic, should you have a pre-existing medical complaint/condition which you fail to declare to your insurer BEFORE agreeing to a short term income protection package, then this will undoubtedly compromise any future pay-outs and possibly render the policy null and void. What’s more, being in receipt of knowledge that redundancy was just around the corner, evidence of self-inflicted injuries and/or accidents or illness brought on by drug or alcohol misuse would also invalidate a future claim.
Do I need short term income protection insurance?
Short term income protection insurance is very much the go-to policy if you don’t happen to have the luxury of savings to fall back on if you should have to ride out an unpredicted period of unemployment (subsequent loss of earnings), while it also comes into its own in the event of you being ineligible for sick pay receipt from a present employer or entitled to any other form of employee benefits in this instance.
If, on the contrary, you could negotiate these troubled financial waters associated with a surprise period of unemployment by your own means (sick/redundancy pay, support of partner/family/savings/etc…) which could in effect tide you over for 6 months or more at worst, then short term income protection insurance might not be your best option. It’s a case of ascertaining if all your on-going debts and household bills could be taken care of courtesy of other measures being in place, or whether or not an insurance policy such as this would benefit your individual circumstances.
As the name alludes to, short term income protection insurance is specifically designed to help bridge the financial gap until such time as the policyholder is in a position to return to work, and is geared up with a more transient timescale in mind. Therefore it’s not recommended for people who will be unable to resume their roles for a long time, if at all for that matter, due to serious illness or life-changing injuries.
How much does short term income protection insurance cost?
It’s the monetary equivalent of that old chestnut about determining the length of a piece of string. It all depends on a number of factors which ultimately influence how much a short term income protection insurance policy end up costing the policyholder.
You should take into account (like the insurance provider will) such variables as the type of cover you elect (accident and sickness cover and unemployment cover can be box-ticked as two separate policies or bolted together when discussing with your insurer), the duration of the period you choose to wait before the payments are released, the term of the benefit period and your age at the beginning of the term and what you do as an occupation (someone that has a deemed high-risk job, such as a manual worker, will pay more for cover than someone with a low-risk job, such as an administrative office worker) all play a significant part.
Short term income protection insurance DOES generally tend to be more cost effective than the broader income protection insurance and if you lodge a successful claim in the future you’ll be guaranteed a good percentage of your current wage/salary (on average between 50% and 65% of your gross income), yet appreciate the underlying fact that any final figure agreed upon will have a £1,000 – £2,000 per month cap for those on huge salaries.
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