Income Protection (IP) is undoubtedly a great product – a product that’s gained significant traction over the past couple of years. Numbers from Gen Re’s latest Protection Pulse stats show a 7% growth in APE compared to the previous year. In Q3 2024 IP accounted for 14% of Protection APE – up from 12% in the same period in 2023 and 10% in 2022. This growth is pleasing to see and a credit to distribution efforts to ensure more and more people are protected against the consequences of losing their income.
Whilst IP is attractive to many and has a wide reach there are times when IP just isn’t suitable. One of the key reasons people don’t buy IP is cost. With 67% of people buying policies that last to age 66 (or longer), most people are opting for longer term policies which are inherently more expensive – the overhead of paying claims to retirement, rather than for shorter period adds significant liability for the insurer.
The costs continue to climb where customers disclose conditions. The underwriting processes can be complex – those with existing medical conditions can be subject to lengthy processes in order to evaluate their risk, for many this is enough to remove the buying impetus, and the moment is lost.
Inevitably situations arise where a traditional long term IP product is neither suitable nor attractive to the customer. So where do we turn? With the experiences of COVID-19 still fresh in our memories, many people (particularly the self-employed) recall what it was like to come face to face with an unexpected and immediate income shock, and sensible, prudent, financial planning would suggest protecting against the risk of losing your income (potentially overnight) remains a key pillar of wider protection planning and customer conversations.
So what if traditional IP isn’t the answer?
Depending on the specific customer needs, it might be that wider protection products maybe better suited, with Critical Illness offering real value when looking for protection against a specific event. For income replacement however, the increased prevalence of short-term IP products is hard to ignore. The IPTF has increased its focus in this area, adding 7 new members in 2025, several of which focus on the provision of shorter-term policies.
There’s no question that shorter term policies have contributed to a significant proportion of the growth the market has seen over recent years. The Iress research shows that most age groups (certainly those over 30) are now likely to opt for short term policies. Having seen more growth than the rest of the market, what does short term IP look like?
Sometimes known as ASU cover, short term IP differs from longer term IP, through the product structure, cover available, underwriting process and the claim payment duration. Perhaps the biggest difference with short term cover is the ability to extend the coverage to include an element of unemployment cover. Whilst not all providers offer this, it’s available from a number of providers in the market. Balancing this breadth of cover with a shorter claim payment duration can give customers more flexibility in planning their protection, particularly for those younger, healthier lives who might not feel the risk justifies the cost of longer-term IP.
Long-term income protection can provide benefit payments for several years or even until retirement, but this extended duration isn’t always necessary. For some individuals, the likelihood of needing income protection for a prolonged period is low, particularly for those in good health or in professions where injuries or illness are less common. From a claim perspective, Short Term IP does exactly what it says on the tin – with benefit payment periods limited to a maximum of 12 or 24 monthly benefits per claim, often with shorter excess or retro (back to day one cover) periods, it can provide an immediate solution to customer losing their income. As with longer term IP, customers can make multiple claims on their policy, so long as they return to work for a suitable requalification period. Also with several short term IP policies, any benefits from other sources such as disability benefits from the Government is not deducted, making it easier for policy holders to manage their budgets.
Whilst underwriting practices differ, short term IP products are typically not individually underwritten, with the insurers utilising a pre-existing condition (and prior knowledge of unemployment) clause to manage adverse lives. This makes the application journey simple and straightforward and having had the operation of these clauses explained to them, customers can be put on risk quickly, in the moment, without the need for lengthy processes gathering medical evidence.
The shorter term nature of the claims tend to make these policies more affordable than the longer term alternatives, these lower premiums make it a more budget friendly option for some – providing essential protection without breaking the bank. The lower cost may allow customers to invest in a wider range of Protection products to fully suit their needs.
Conclusion
Traditional IP isn’t for everyone and there’s several reasons this might be the case. In the event traditional IP isn’t right there’s a wide range of Protection to consider, and short-term IP (or ASU) undoubtedly forms part of that conversation. Short-term income protection offers a range of benefits for individuals who don’t need the long-term coverage provided by traditional income protection policies. With its affordability, flexibility, and suitability for specific circumstances, short-term income protection can be an ideal option for many.
