Short Term Income Protection (STIP) plans have become ever more popular in recent times with 48.8% of new income protection plans having a limited benefit duration in 2017 (Swiss Re Term & Health Watch 2018). Such policies can be a great compromise for those that need to protect their income but cannot afford a full income protection plan but how do insurers differ in how they offer this?

Like normal Income Protection plans, STIP is designed to pay an agreed level of income in the event of a client being unable to work due to ill health or injury. Unlike normal income protection plans the benefit is paid for a limited time period. The benefit periods can range from 1 and 5 years with most insurers only offering either a 1 or 2-year benefit period.

Multiple Claims

Whilst the benefit period is limited, insurers do allow consumers the ability to claim multiple times if for instance the client returns to work after ill health and is then taken ill again.

Insurers differ greatly when it comes to making multiple claims. Insurers treat claims differently where the reason for the second claim is due to the same or a linked condition, where the second claim is unlinked to the previous claim and whether the second claim is due to the same or linked condition but the maximum benefit period on the previous claim has been met.

The easiest way to explain how insurers handle claims, is to provide scenarios.

Scenario 1 – A secondary claim where the reason is due to the same or a linked condition as the previous claim where the maximum benefit period was not reached:

  • If a client returns to work after a claim and then becomes ill again within a 6 or 12-month period with the same or a linked condition, the deferred period will be waived, as long as the initial claim did not last for the full benefit period (as described above). The monthly benefit payments will continue until the maximum benefit period (including the previous claim period) is reached.

Scenario 2 – A secondary claim where the reason is due to the same or linked condition and maximum benefit period for the first claim has been reached:

  • If the client has previously claimed for the full benefit period, they must return to work for a minimum of 6 to 12 months before a subsequent claim can be made for the same or linked condition. The deferred period will also apply.

Scenario 3 – A secondary claim where the reason is due to an unlinked condition to the prior claim:

  • If a client returns to work after a claim and then suffers a different injury or illness and is unable to work then, this is treated as a new claim and the deferred period applies therefore monthly benefit payments can be made after passing that period of time. In this scenario some insurers will specify a period of time the client must have been back in work before the second claim can be made.

Conversion

Perhaps more than any other protection policy, Income Protection plans should be reviewed regularly to ensure that the benefits in place remain suitable for the client. For many clients the ability to change the benefit period over time will be necessary as the client’ circumstances change. The ability to make adjustments to the benefit period within a STIP policy differs amongst insurers. The table below highlights four scenarios and whether the adjustment can be facilitated by the provider:

Conclusion

STIP policies provide an ideal solution for clients where budget is a limitation. The market offers a range of solutions that can be selected from to ensure that the plan recommended is tailored to the clients’ needs. Overall, both The Exeter and Royal London are strong as they offer more choice in terms of benefit periods. Royal London, Legal & General and Zurich offer the longest linked claim period which is desirable to help reduce the need for a second deferred period if multiple claims are made for the same or linked condition.

4 Comments

  1. Paul

    The conversion table doesn’t really tell the full story for the client. The 3rd row asks if a client can covert their limited plan to a full one? The difference to the client between ‘no’ and ‘yes but with further underwriting, is non existent.

    Working for one of the ‘no’ providers; I can explain the journey:

    Adviser or client call to change to a full benefit, we send out a quote with some underwriting questions and the application is underwritten. If it’s a menu plan, all other benefits stay the same and the new full benefit is included in the monthly premium.

    This process will not differ from a ‘yes but with further underwriting’. The only difference may be that a policy number is either retained or the provider will give the impression.

    My point is: where it says ‘no’, it’s misleading to state this when there is an option for the client and it’s no different to the journey for the others but implies inflexibility.

    Reply
  2. Adam Higgs

    Great comment Paul, the point we are trying to get across which perhaps could be clearer is which insurers will allow the change underwriting free, which will underwrite but not require a new policy and which will not allow the current policy to be amended in that way and would require a complete new application.

    Reply
  3. Mike roberts

    I don’t sell enough IP but am feeling that maybe 2 or 5 year cover would help increase my sales. Are there any stats around how long a typical claim lasts?

    Reply

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