Ben Heffer, insight analyst at the financial research company, said the development of short-term income protection (STIP) to fill the payment protection insurance (PPI) gap was not a cosmetic change but a consumer-centric one.
He said: “This is not just a superficial attempt to dupe the buying public, STIP has certain advantages that PPI products do not have. If you do not have a mortgage and are paying rent, and you lost your job, you would still need to pay rent.
“STIP does not have to be attached to a specific mortgage as with PPI and mortgage payment protection insurance (MPPI). With the increasing turn away from house buying to renting it ties in well.”
In April, Legal & General launched a short-term income protection product to replace its MPPI product for new business.
The product is not linked to a mortgage or loan, but instead pays an amount based on the consumer’s income each month.
According to Defaqto research, there has been a rise in the numbers of STIP products available in the market from 20 to 66 between 2009 and 2012. MPPI products dropped from 98 to 63 in the same period.
Pat Bunton, director at mortgage brokers London & Country, said: “STIP is a vauable addition. It can provide a very good safety net for those that are renting and it potentially makes the market place a little bigger in this way.”
Rents have risen by 0.5% on monthly basis as rental demand continues to increase, the April 2012 LSL Property Service buy-to-let index has shown; annual rental inflation stands at 2.4%.
Aviva and Nationwide have also launched STIP products in the last year.
The FSA and Office of Fair Trading published consultation in November about the alternative PPI products. A further FSA paper on STIP is expected in the summer.