Insuring your income is important: protecting the revenue streams that fund a person's lifestyle, savings and pension accumulation. But which product is more appropriate?
According to proponents of lifestyle insurance, short-term protection can be very useful for lower earners, young people, renters and those who are brand new to protection and cautious about insurance products.
Those who advocate long-term protection products extol the wider scope of the cover, the potential for more comprehensive insurance and the ability to protect themselves up to the age of retirement.
According to Raluca Boroianu-Omura, head of health and protection for the Association of British Insurers, the main issue is to get some form of protection.
She says: "The protection gap in the UK is one of the largest in Europe. Millions of households could be left seriously exposed if the main earner were unable to work, and the family forced to rely on state benefits to get by."
For her, giving the consumer a choice of protection is paramount. "A number of affordable protection products are available, which allow individuals to protect their income in the event they are unable to work for health reasons.
"Some of these are longer-term products which run for many years, and are underwritten at the outset.
"Others are short term, may not be underwritten, but which may contain exclusions at point of claim."
A longer term plan that covers an individual's income up to the age of retirement has the advantage of its longevity. Consumers know what their premium is, what their expected level of cover would be, and what conditions are covered.
For example, long-term income protection plans tend to cover serious progressive conditions such as MS and motor neurone disease.
It also covers debilitating strokes and heart attacks, where the ability to work is permanently ended. Such conditions and illnesses are not usually covered by short-term insurance products.
Alan Lakey, founder of the CI Expert, comments: "Unsurprisingly, a policy paying income potentially up to retirement age will cost more than a short-term plan.
"Insurers have determined it increases the potential payout and this should guide consumers that proper cover costs more, and is worth paying for."
Long-term IP features at-a-glance
- More conditions covered.
- More costly.
- Greater certainty over premium.
- Increased potential payout.
- Cover until retirement.
"At the end of the day," says Paul Reed, co-founder of Vita, "some cover is better than no cover, but there are wider options out there.
"We would always look to get a long-term plan in place for a customer, but if budget restricts or the information is not there, then the client may well lean towards a cheaper product. We think you get what you pay for."
Short-term income protection
Short-term income protection also has its advantages, not least because it is as flexible as the individual's lifestyle and situation.