Mortgage Protection

Time to lay down our swords
Pam Needham's Talking Point

Confusion surrounding the difference between long-term income protection (sometimes referred to as permanent health insurance) and short-term income protection has plagued the market for years. And now with new products pushing the boundaries of one camp or the other, it is sometimes difficult to know what the best options are. Despite the constant clash between long-term and short-term income protection, there are circumstances when they can work in harmony.

But first, let's be clear about the difference between the two products. Short-term income protection replaces a person's net monthly income (often up to 75%) if they are unable to work due to accident, sickness or unemployment. The benefit period is for a contractual 'short' period of time, typically 12 months, but some newer, more flexible providers also offer benefit cover for three and six months. Short-term income protection is not a complex product to sell. Its exclusions are standard and, contrary to popular belief, many policies do protect against stress and back problems if supported by medical evidence. Short-term income protection is sometimes described as 'an affordable band-aid' and many would argue some cover is better than no cover.

Long-term income protection is a complex product to sell as it is heavily underwritten, weighting in favour of certain aspects such as occupation, gender, non-smokers, etc. Long-term income protection only covers for accident and sickness, but will pay out a sum of money each month until the policy holder recovers or retires. The total pay out can be significant as the policyholder could potentially claim for 10, 20 or even 40 years, and the premiums rightly reflect this. Many would argue that it is the best protection product available and seriously ill claimants are put at risk with short-term income protection.

What few IFAs (and providers) realise is that the two products can compliment each other, giving the policyholder the ultimate protection, without the ultimately expensive price tag. By taking a short-term income protection policy of say, 12 months, and delaying the start date of a long-term income protection policy by the same amount can drastically reduce the premiums for long-term income protection. The customer ends up with comprehensive cover - including unemployment cover in the short term and a safety net if their illness continues long term - at an affordable rate. This has only been feasible since a number of standalone short-term income protection providers have launched in the market offering deals as low as 60p a month per £100 of benefit.

I would argue that although short- and long-term income protection each has their own place, they no longer have to work in isolation.

Pam Needham is a Director at Ant Insurance (www.antinsurance.co.uk)