Long or short-term income protection – which is right for you?
Experts have long expressed their concerns for those who don’t have protection policies, fearing that millions of households could face real financial hardship if the main breadwinner was unable to work due to a serious illness, accident or unemployment. For those new to insurance, short-term policies can be a cost-effective way to get some cover in place.
This type of policy, sometimes referred to as accident, sickness and unemployment insurance, is designed to pay out a monthly income for one or two years. It covers a percentage of your monthly income to help you pay mortgage and household bills.
If you claim on your policy, there is a waiting period before it starts to pay out, and you can choose how long you want this to be when you take the policy out. This is usually referred to as the ‘deferred period’ and can be from a few days up to two years. The longer the deferred period, the lower the premiums are likely to be.
These provide a regular income if you are unable to work due to illness or disability (but not if you are made redundant) until you are well enough to return to work, or until you reach the end of the policy term, or die. Here, the premiums are likely to be higher because they cover a wider range of illnesses, including debilitating strokes and heart attacks not usually covered by short-term policies.
So clearly there is a choice, depending on how much you can afford in premiums, the length of time you want the policy for, and the risks you want to cover. Short-term policies often don’t require a medical so can be quick and easy to arrange and have lower premiums, especially if you take the policy out when you’re younger. Longer-term policies often provide protection right up to retirement, and offer much wider cover, but are likely to be more expensive.