Do you know your ASU from your IP
26 Oct 2018
With more than 300,000 people forced to stop work due to long-term sickness or injury every year, taking out insurance to protect your income is a sensible step. But, as there are some massive differences between the policies on offer, it pays to understand what's what when it comes to covering your income.
There are two main types of insurance you can take out to protect your income - accident sickness and unemployment cover, which is commonly known as ASU, and income protection (IP). Both policies let you take out cover to replace your income if you're unable to work due to long-term sickness or injury or you lose your job through no fault of your own, but that's really where the similarities end.
These are some of the key differences.
ASU provides you with a replacement income if you're unable to work due to illness or injury or you lose your job through no fault of your own. IP covers absence due to illness or injury. Unemployment isn't routinely included, although some plans offer it as an option or you can take out a separate plan.
While ASU covers more reasons for being off work, it does tend to be a less generous policy. For example, with IP, most policies are now own occupation, which means they'll pay out if you're unable to do your own job. ASU policies will often be suited to occupation, which may mean your claim is declined if the insurer thinks you could do another job.
You can often find more exclusions on some ASU policies too. In particular, look out for exclusions for back problems and stress - these are two of the commonest reasons for claims on IP but can be excluded on ASU.
If you make a claim on an ASU policy, the maximum period it will pay out is usually 12 or 24 months. Once you get to the end of that period, it'll stop paying out.
On the other hand, with IP, a tax-free monthly income will be paid until you're able to return to work or to the end of the period you specified. This could be until you reach a set age, up to 70, or, if you've plumped for a short term policy, up to five years.
Although many people do return to work within the first year, the average length of an IP claim shows it can take much longer. For example, LV='s average in 2014 was five years and eight months - relying on an ASU policy with a payment period of 12 or 24 months could leave you struggling to cover your outgoings.
ASU policies are designed to be easy to take out so the insurers keep the questions to a minimum during the application stage. Unfortunately, this means that, if you make a claim, the insurer will check at this point whether you're eligible.
If there's any evidence that it's a preexisting condition or, in the case of unemployment cover, you knew you might be made redundant, you could have your claim rejected.
IP is medically underwritten, which means all this information is collected upfront. While it might slow down the application process if you've had any health problems, it does mean you'll be charged a fair premium and know exactly what is and isn't covered. This can save you plenty of hassle if you do need to make a claim.
What's more, with ASU, you may struggle to get cover in the future for the condition that lead to your claim. But, as long as you keep paying your IP premiums, your cover will continue once you're back at work.
Even though IP offers much more generous cover, it's not necessarily that much more expensive than ASU.
IP premiums will depend on your age, occupation, the length of the waiting period before it starts providing an income and how long the policy could pay out. You can also take out guaranteed premiums so you know exactly what you'll pay for cover in the future.
Conversely, ASU is an annually renewable policy, much like your car or home insurance. This means you don't know what you'll pay in the future and, if you make a claim, you could find yourself unable to get cover or with lots of exclusions on your policy.
If you're smart enough to be thinking about insuring your income, make sure you get the best possible policy. Speak to one of our protection experts at LifeSearch for more information.
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