In the wake of the payment protection insurance scandal, Harvey Jones asks if so-called ‘STIP’ products come up to scratch
What’s in a name? If you are in the business of selling protection, an awful lot. Especially if you are selling income protection (IP) and the public thinks you are flogging them payment protection insurance (PPI).
The two products look alike, they sound alike, and when PPI scandal broke, many customers could not tell them apart. The fact that IP is a vastly superior product was lost in the noise.
Now the protection industry is in danger of adding to customer confusion (and its own misery), by launching an IP spin-off called short-term income protection (STIP).
STIP is a hybrid product, the result of cross-breeding IP and PPI. It aims to offer the cover and security of long-term IP, but without the hefty price tag, and with simpler, faster underwriting.
Like PPI, it only pays claims for a set term, typically two years. Many STIP policies also have reviewable premiums. Some even throw in unemployment cover as well. Hopefully, PPI’s bad traits have been bred out, notably the wide exclusions and even wider salesmen.
In an ideal world, every protection adviser would sell long-term IP, says Stephen Cowdell, protection consultant at Assured Futures.
“IP is superior to STIP, because it gives you much greater protection in case of serious illness,” he says. “We sell long-term IP to professional clients. They have worked hard to get where they are, and want to protect their income for life, not just two years.”
But not everybody can afford this level of cover.
“I’m a firm believer in the principle that some cover is better than none,” Cowdell adds. “I’m happy to sell STIP to clients who can’t afford to buy IP, but I certainly wouldn’t sell them PPI.”
Cowdell regularly sells Exeter Family Friendly’s Bills & Things, which offers a maximum claims period of one or two years.
“It offers ‘own occupation’ cover with no financial underwriting, which is attractive to, say, builders and skilled workers who can’t get this option from traditional insurers,” he says.
Tom Connor, director of health insurance brokers Drewberry, sells long-term IP when possible, STIP when it is not.
“STIP is affordable, and fills a nice gap,” he says. “It would cost a 35-year-old accountant around £18 a month for cover worth £2,000 a month on a 13-week deferred period. Long-term IP would cost him nearly £39 a month.”
STIP also offers valuable cover for people in manual occupations, who may suffer a series of short-term injuries.
“But if the policyholder has a long-term problem, such as a chronic condition or multiple sclerosis, it won’t do the job,” Connor says. “Advisers have to realise this, and so do their clients.”
His favourite STIP policy is the LV= Budget Income Protection plan.
“This allows you to claim for up to 24 months for one condition, and another 24 months for a new claim,” Connor says. “That claim may be for a new condition, or the same condition where they could return to work for at least six months. That’s how it should be. Friends Life, by comparison, will only pay out for 24 months in total.”
Connor would like to see more insurers launch STIP products.