When it comes to protecting your income, one size does not fit all. Whether you’re an individual looking to protect your salary or an employer considering support options for your team, understanding the difference between short term and long term income protection is key to choosing the right option.
Each type of policy offers different benefits depending on your personal circumstances, from how long you’re covered to how soon payouts begin. In this article, we’ll break down what short term and long term income protection are, what they both offer, and help you work out which might best suit you.
We’ll also take a look at Group Income Protection Insurance, which is a benefit that employers can offer as part of a staff package. We’ll also explore how it compares to individual plans when it comes to cover and support.
What is Income Protection Insurance?
Income Protection Insurance is designed to give you a financial cushion if you’re unable to work due to an illness or injury. Rather than leaving you to rely on just your savings or statutory sick pay (SSP), this type of cover pays out regular income which is usually a percentage of your salary. This will help you manage bills, household expenses, and daily living expenses.
Income Protection Insurance cover can be tailored to suit your needs, with options to adjust how long you wait before payment begins (called a ‘deferred period’) and how long they’ll continue (known as the ‘benefit term’). It can be a valuable safety net whether you’re self employed, employed, or a business owner.
What is short term Income Protection Insurance?
Short term Income Protection Insurance is a policy that pays out a regular income for a limited period of time. This can usually be anywhere from 6 months up to 2 years if you’re unable to work during illness or injury. This is a more affordable option and is designed to help cover your essential outgoings while you recover.
Short term Income Protection Insurance has the benefit period capped, hence short term cover tends to be more affordable than long term Income Protection. This makes it a popular choice for people looking for protection on a smaller budget, or for employers who want to offer a level of support to staff within a set budget.
This type of Income Protection Insurance is a good solution for shorter recovery periods.
What is long term Income Protection Insurance?
Long term Income Protection offers financial support over an extended period when you’re unable to work during illness or after an injury. Depending on the policy, payments can continue until you’re well enough to return to work, reach the end of the benefit term or even up to your retirement age.
While long term Income Protection typically comes with higher premiums rather than short term policies, it offers a much bigger safety net which helps you maintain financial stability through lengthy life challenges.
Long term cover can be very valuable for individuals who have families, or financial commitments such as mortgages, and for employers seeking to provide long lasting support for their employees.
What is a deferred period?
With Income Protection Insurance, there is usually a deferred period. This refers to the time you have to wait before the policy starts. It's essentially a waiting period, and it plays a big role in determining the cost of your cover. For example, if your policy has a deferred period of four weeks (known as a short deferred period), you’ll begin receiving benefit payments four weeks after your illness or injury prevents you from working.
How does Group Income Protection Insurance compare?
Group Income Protection Insurance is usually offered by employers as part of a staff benefits package and provides cover for a portion of your salary if employees are unable to work due to illness or injury. The big difference is that the employer sets up the insurance, and pays for it.
The terms, such as payout amounts, deferred periods, and benefit length are set by the employer and apply to designated employees.
Group Income Protection is aimed at employers to insure their employees, as part of a workplace benefits package. It’s designed to support staff who are unable to work by providing a steady income whilst they recover.
For employers, it’s not just about protecting staff income. It can support a positive workplace culture, demonstrating a commitment to employee wellbeing, which can help with staff retention and recruitment. Group Income Protection policies can vary, providing cover from as short as 6 months or right up until retirement.
Some employers may choose a shorter benefit term to keep costs down while still offering support. As an employee, it’s important to understand the details of an employer’s policy, including how long payments last and what deferred period applies, to know exactly what kind of protection is in place.
How Wiltshire Friendly can help
We provide policies for individuals, those who are self employed or employed where their employer does not provide sick pay, and businesses looking to support their employees through Group Income Protection Insurance.
If you’re unsure where to start, our friendly team is here to help you find the right solution. Get in contact with us today to find out more.