How and where to buy short-term income protection insurance

Money Advice Service

Short-term income protection (STIP) policy rates vary depending on the type and level of cover you’re looking for. Always take the time to make sure the policy you get is in line with your financial needs and competitively priced.

How much does it cost?

Not sure what something means? Have a look at our Protection insurance glossary.

Monthly payments (also known as premiums) for short-term income protection insurance depend on a range of factors.

These include:

  • age
  • waiting period before the policy starts to pay out
  • whether you smoke or have previously smoked
  • health (your current health, your weight, your family medical history)
  • job (some occupations carry a higher risk than others and might mean you have to pay more each month).

The amount of cover you need will depend on your circumstances. You should consider:

  • debts
  • take home pay
  • mortgage/rent
  • number of dependents.

How much cover do I need?

STIP protection policies are designed to pay out over a fixed amount of time, usually a year. They aim to bridge the gap until you can work again. If you’re concerned that you might not be able to work in the long-term, you might consider income protection insurance.

You can work out how much cover you need in three easy steps.

Step 1: First add up:

  • Your debts: these include your mortgage and any other debts which you might choose to have covered by the policy.
  • Expenses you want the insurance to cover: any essential monthly outgoings, such as bills, food shopping and child maintenance.

Step 2: Check what kind of cover you already have

For example, if you’re employed, your benefits package might include a certain amount of ‘sick pay’. Check your work contract or speak to your HR department for more information.

Step 3: Calculate the cover you need

When you have these two figures, take away the benefits or cover you already have from the amount you’ll need.

This figure represents how much you need to be covered for each month.

The amount of time you want to be covered for, also known as the term, depends on your situation.

Short-term income protection insurance example

Add up

John (42) and Judith (39) have a joint household income of £41,000 per year.

They have an outstanding mortgage of £213,000 which they expect to pay off in 18 years.

They also took out a £5,000 loan to purchase a car. Their basic monthly outgoings are £1,000 (£12,000 per year).

What you already have

Neither John nor Judith have a company sick pay scheme and would only be entitled to Statutory Sick Pay (£88.45 per week for up to 28 weeks) if they found themselves unable to work.

Calculate what you need

They decide that they need enough short-term income protection insurance to pay off the mortgage, car payments and living costs.

They take out a 12-month policy, which will cover 80% of their income, which covers the shortfall between their statutory sick pay and their outgoings as well as basic living costs.

Where to go for quotes

To find the best value, compare as many offers as possible.

You can get short-term income protection insurance quotes from:

  • banks
  • specialist brokers
  • credit card companies
  • independent financial advisers
  • retailers including major supermarkets
  • insurers that only seel direct (not through comparison sites)
  • comparison sites – make sure you use several to get a good picture of what’s available
  • your mortgage provider – you might be offered STIP after you take out a mortgage, but you might be able to find a better deal elsewhere.

Using a broker

If you’re unsure what level of cover is right for you, it’s a good idea to speak to a financial adviser.

These experts can help you find the right short-term income protection policy and might be able to secure it at a better price.

Find out more in our guide When to use an insurance broker.

Be honest about your medical history

In 2016, research from the ABI found that 97% of all protection insurance claims were paid out. Of those that didn’t pay out the majority failed to provide accurate information to their insurer.

When you sign up to a policy, it’s important that you answer all the question honestly and fully.

If you ever need to make a claim your insurer may look at your medical history and if you failed to share some information, or provided inaccurate details, they might not pay out.

Buying a life insurance policy

Read the small print

Read the small print to make sure you know what you’re buying. Find out what is and isn’t covered and ask the insurer, or your adviser to explain anything you don’t understand.

Changing your mind

Once you’ve bought an insurance policy you have 30 days to change your mind and get a full refund.

Keeping your cover up to date

It is important to keep an eye on your policy and make sure you update it in case of certain events.

Common reasons to add more cover include:

  • you’ve had another child
  • your partner has stopped working
  • you’ve taken out a new mortgage or car loan.

If you change jobs and your new benefits package includes a more generous ‘sick pay’ benefit, you may consider lowering your level of cover.

Do you need life insurance? This product will provide some financial support to your dependants if you die.

Do you need income protection insurance? This type of insurance provides regular payments if you’re unable to work due to illness or injury.

Do you need payment protection insurance? Also known as PPI, this product will help you keep making payments if you can’t work due to an illness, injury or if you’re made redundant.

Do you need critical illness insurance? This type of policy will provide you with a tax-free ‘lump sum’ if you’re diagnosed with a serious illness covered by your policy.

This article is provided by the Money Advice Service.

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