Short term income protection

Short term income protection (STIP) is a form of financial protection that will pay out to you if you’re unable to work due to illness, injury or unemployment, (depending on which policy you choose).

The length of cover will depend on the provider and the terms and conditions of the policy type, but generally, it can cover you for 1 - 2 years.

When you make a claim, you’ll need to wait a certain amount of time before you start to receive your payments, (this is known as a waiting period or deferred period).

How long you defer your payments for will largely depend on your personal needs and circumstances.

For example, whether you’ll receive sick pay from your employer (how much you’ll receive and how long for) or whether you’re self-employed and won’t have this benefit.

Generally speaking, the waiting or deferred period can be anywhere from 4 weeks – 1 year (or up to 2 years with some providers).

Your payments will be made in monthly (tax-free) instalments and will typically be from 50% up to 70% of your normal gross salary (this can vary between providers).

For example, if your salary is £30,000 and your policy is designed to pay out at 70%, you could receive £21,000 (£1,750 per month) if you were off work for 12 months after the deferred period.

(The above is a hypothetical scenario. The amount paid out will vary depending on the terms and conditions of the providers).

Payments will continue until you’re well enough to return to work, the payment period specified in your policy comes to an end or the policy expires - whichever happens first.

There are different forms of short term income protection which will cover you for different circumstances.

Your cover can be more or less comprehensive depending on the policy you choose.

Short term income protection policies include:

• Accident and sickness only
• Unemployment only
• Accident, sickness and unemployment

The best policy for you will depend on what you want to cover.

For example, if you already have a life insurance policy with critical illness cover you may just want some additional protection in the event of unemployment.

If you have no other forms of cover in place, and it’s not within your budget to take out multiple policies, you may want more encompassing cover.

While we can’t compare income protection quotes for you at Reassured we can compare quotes for critical illness cover (either combined with life insurance or standalone), which pays out if you’re diagnosed with a serious illness and unable to work.

Read our full income protection vs critical illness cover guide.

Unlike most long term income protection policies, short term income protection can pay out due to unemployment.

You’ll be covered for redundancy through an unemployment only policy or through an accident, sickness and unemployment policy.

The result of you losing your job cannot be due to your own fault - for example, if you were dismissed, if you quit your job or if you take voluntary redundancy.

If you’re made redundant and you weren’t aware of this at the time you took your policy out, it’s possible to make a claim and receive a pay out.

The monthly payments you receive can help to replace any lost income until you find a new job, the payment period specified in your policy comes to an end (eg. 12 or 24 months) or until your policy expires - whichever happens first.

Due to the current COVID-19 pandemic, most providers aren’t offering unemployment cover on new policies.

However, if you have an existing policy you should be able to make a claim as per the terms and conditions of your policy.

A short term income protection policy won’t pay out straight away after you’ve made a claim.

This is because there’s a waiting period (or deferred period) added to most policies.

This time period can vary between providers but, generally speaking, it can be a short as 4 weeks or as long as 2 years.

You’ll get to choose the length of your deferred period at the point of application.

This will largely depend on your personal needs and circumstances.

For example, if you benefit from full sick pay or have personal savings, these may be enough to keep you afloat and so you may choose to defer your income payments for a longer period of time (perhaps a year).

However, if you’re self-employed and don’t benefit from full sick pay or you don’t wish to dip into your personal savings, you may choose to have a shorter deferred period (perhaps 4 weeks).

Once the deferred period has passed, your payments will begin and they will continue until you return to work, until the payment period outlined in your policy comes to an end or until your policy comes to an end (whatever happens first).

Upon the diagnosis of an illness, after an accident has taken place that has left you injured or after you have been made redundant, you can make a claim on your policy.

If claiming for accident or sickness you may need to provide medical evidence as part of your claim.

If claiming for unemployment, you may need to provide proof of your redundancy.

A pay out will not be made straight after a claim has been made. Pay outs will begin after your deferred or waiting period has ended.

Whether you need short term income protection will largely depend on your own personal circumstances.

Those who have a family to provide for or have a mortgage to keep up with may benefit from having this form of protection in place to help cover these expenses if they were unable to work.

Those who are self-employed may also benefit from short term income protection should they become unable to work.

Self-employed workers won’t benefit from sick pay from an employer, so monthly income protection payments can be a big financial help.

While income protection won’t pay out as much as a full salary, it can help to ease some financial stress and help to maintain your daily living costs or cover essential expenses.

Read our full guide to self-employed income protection for more information.

You may not need short term income protection if:

• You receive full sick pay as an employee benefit
• You have a large amount of savings
• You have other forms of protection in place to cover you

Overall, whether you need short term income protection will be down to your needs and circumstances.

Comparing your current outgoings and expenses with your available forms of finance may help you to work out what financial protection will best suit you.