Guide to short-term income protection cover

None of us are immune from injury and illness, even if we like to think we’re invincible. And if you find yourself unable to work for medical reasons, having short-term income protection in place could provide a financial lifeline for a period of time. In this guide, we’ll explain exactly what short-term income protection is, and when and why you might want to take out cover.

How income protection works

Income protection is an insurance policy designed to give you peace of mind that you'll still have money coming in even if you lose your income for medical reasons. If you’re covered by income protection insurance, you can make a claim if your health condition prevents you from working, and you'll receive your monthly payments if your claim is successful.

You're covered for any medical problem you face – from physical injuries and mental health issues to illnesses like cancer – so long as it causes you to be signed off work by a health professional. Read more in our guide to what is and isn't covered by income protection insurance.

Benefit period

When you buy an income protection policy, one of the things you'll decide is what benefit period you’d like: it can be either short-term or full-term. The 'benefit period' refers to how long you'd receive monthly insurance payments if you were signed off work.

A short-term income protection policy will pay your benefit for a maximum amount of time – typically 1, 2 or 5 years, depending what you choose when you take out a policy. This is different to a full-term policy, which doesn't have a maximum benefit period, but pays out for as long as you need it to – until you're well enough to go back to work or you retire or your policy ends.

Waiting period

Another important feature of income protection is the waiting period, which all policies have. This refers to the amount of time you wait between becoming incapacitated and starting to receive your monthly benefit. Again, you choose this when you take out a policy, based on how quickly you'd need the financial backup.

What is short-term income protection?

Short-term income protection pays out for a shorter period of time than its alternative: full-term income protection. If you make a valid claim while covered by short-term income protection, you’ll receive a monthly benefit that pays out over a fixed (and maximum) amount of time – e.g. 1, 2 or 5 years. You won’t be covered after this period, even if you're still too ill or injured to work.

If you’re looking for affordable income protection, and you’re confident that you’d only need financial backup for a relatively short period if you were unwell, taking out a short-term policy could be the right call. The premiums are cheaper, and while it does come with a shorter benefit period, this could end up being adequate for your needs. The buffer it provides is not insignificant, after all.

Of course, none of us knows what health challenges we might face in the future – from illnesses to accidents and everything in between. But if you found yourself unable to work for a sustained period, or for multiple episodes throughout your working life, short-term income protection could provide just the financial cushion you need.

Short-term vs. full-term income protection

Short-term income protection is a cheaper alternative to full-term income protection because the insurer knows that any monthly payouts would be capped after a certain amount of time. With full-term income protection, your benefit can last for as long as you need it to. It’s more comprehensive, which is what makes it more expensive. This is why you may see short-term income protection referred to as ‘budget income protection’ by some insurers.

One similarity between short-term and full-term income protection is that you can make multiple claims during the life of a policy – even if it’s for the same illness or condition. So if you have more than one absence from work due to sickness, you should be able to claim your benefit payments each time. With short-term income protection, insurers usually require a minimum amount of time to pass between claims; you should check the details on this point when you buy a policy, as each insurer may approach this differently.

Is short-term income protection right for me?

If your priority is to keep costs down while giving your family some financial backup, short-term income protection will provide you with a safety net for a certain period of time. It means you’ll have a potentially useful buffer if you can’t work due to illness or injury – which is, of course, better than having no protection in place at all.

The key thing to remember is that short-term income protection will always stop paying after the maximum benefit period, even if you still can't work – so you might need to find another way to support yourself. Whether or not you're happy to live with this is up to you and your appetite for risk – as well as what you can afford and how much you're happy to pay in premiums.

If you can afford the higher premiums, full-term income protection provides complete peace of mind, whatever the future brings for your health. With it you'd know that you'll always have money coming in to support you and your loved ones if you lost your income for health reasons, with no end date looming. The only time it would stop paying is if you were able to work again or you retire/your policy ends (whichever happens first). Having this kind of cover in place can also work out cheaper than, say, dipping into your savings, which you might be forced to do this if you don’t have cover at all.

It’s worth bearing in mind that some insurers may take the decision out of your hands. It could be the case that you're only eligible for short-term income protection based on your occupation or health history – and insurers deeming you too high risk to offer you full-term cover.