Short-term income protection (Stip) marketing teams have encountered challenges over the past few years.
Among the biggest hurdles, the launch of Stip as a cheaper, consumer-friendly alternative to regular income protection (IP) has been overshadowed by the payment protection insurance (PPI) mis-selling scandal.
To make matters worse, last year the Competition Commission said short-term protection is just another form of PPI. Understandably, given industry sentiment towards the loan repayment insurance, this bruising statement hardly helped the ability to market Stip products or to clear up the general ambiguity that clouds different functions of protection policies.
Despite now being on the market for several years, there is still no industry-accepted definition on what differentiates Stip from regular IP and PPI. “There is much confusion in the market about what Stip is and what it is not, and the Competition Commission ruling arguably doesn’t help,” says Kevin Carr, managing director of Kevin Carr Consulting.
He continues: “For some, Stip is a short-term version of traditional IP. However, for others it is akin to a new version of PPI. It is difficult to compare all of the ‘Stip’ products in the market as we have two or three different markets crossing over and using the same name.”
So what is Stip exactly and how does it differ from competing products? Short-term income protection is essentially a hybrid of PPI and IP. Designed to pay out if you miss work through sickness, an accident or unemployment, it offers the cover and security of long-term IP at a cheaper rate and with simpler and faster underwriting.
Like PPI products, Stip only pays claims for a set term – between one and five years – and premiums can change annually. However, unlike PPI, which repaid debts directly to the lender, Stip cover the policyholder’s income by paying a percentage of earnings – typically up to 60 per cent of the gross salary.
Beside this fundamental difference, Stip has been heralded for offering greater flexibility than PPI. For example, Stip imposes less automatic exclusions than PPI, which excludes claims concerning physical and mental issues such as back pain, stress and depression. Moreover, some Stip plans also offer own occupation and guaranteed rates, two other key components that PPI lacks.
Ripple effect
And yet, despite appearing as a superior and altogether different product, ambiguity in the industry has led to Stip being pigeonholed as a rebranding of PPI. This uncertainty was emphasised by a Cirencester Friendly survey last November, which revealed that almost two thirds of advisers fear their clients do not understand income protection products.
