Income Protection vs Accident, Sickness & Unemployment Cover. An introductionBut firstly my name is Dan, I am a CeMAP qualified mortgage & protection adviser. This video is purely for educational purposes only, and should not be seen as advice or a recommendation to act.
Grab a drink, sit back, and relax. I will hopefully cover off the basics of the differences between Income Protection and Accident, Sickness, and Unemployment. Also known as ASU. I will put a link in the description below to a helpful website that will cover these points in finer detail.
If you’re unable to work, both Income Protection & ASU will provide you with an income, but choosing the right one is so important to protect your household finances. Let me go through the differences, to help you decide.
What is Income Protection Insurance?Income protection gives you cover for the long term if you’re unable to work for health reasons. Similar to ASU, income replacement policies are based on your current earnings, up to a maximum of around 65%, but they don’t usually cover redundancy.
The major difference is that some income protection policies can pay you indefinitely until you can return to your job, find another job, or even until you retire.
Some policies only payout if you can’t perform any work, rather than simply being unable to remain in your existing role. More comprehensive policies protect your existing job, but they’ll also cost more.
Income protection tends to include detailed personal questions and a medical. This type of cover is also significantly more expensive than ASU which is designed more for the shorter term.
What is Accident, Sickness & Unemployment Insurance?Accident, sickness, and unemployment insurance, ASU, pays out if you lose your job or become unable to work through illness, injury, or redundancy.
It’s often referred to as short term income protection insurance or payment protection insurance, as payouts are restricted so you can only claim for a maximum of 12 to 24 months.
The level of cover is based on your mortgage and monthly outgoings, and although you get to choose the amount, payouts will usually be limited to 60-65% of your income.
You will pay a monthly premium for the cover, which rolls over month by month until you cancel the policy or make a claim. This makes ASU insurance relatively easy to take out.
What sick pay are you entitled to?Some employers have a sick pay scheme already built into their employment contracts, also known as a group sickness policy. Even if they don’t, employers are required by law to give you Statutory Sick Pay (SSP) provided:
You are classed as an employee, including agency workers.
You have been ill for at least 4 days in a row
You earn at least £116 per week, before tax
You tell your employer you’re sick within an appropriate timeframe
If you meet this criteria, you can start claiming Statutory Sick Pay, for up to 28 weeks. At the time of recording, you receive £95.85 a week. I will put a link to the Government website in the description for further information.
You will only get paid Statutory Sick Pay for the days you would normally have worked, and it is subject to Tax and National Insurance.
Different rules apply for Agricultural Sick Pay, and different rules again apply within Scotland. Again, I will put links in the description below.
Do I need Income Protection or Accident, Sickness, and Unemployment?If you need more financial help than SSP and/or your company scheme can provide, it does make sense to protect yourself with one of these policies. But make sure you check with your employer before applying to see what you’re already covered for.
The major difference between these types of policies is why they payout and how, so you’ll need to think carefully about:
Your circumstances What you want to be covered for
How much it’s worth you spending on premiums
Both types of policies require a deferred period before they’ll payout, although some policies will backdate their payout to the start of your claim.
If you don’t have many outgoings or significant liabilities, ASU should help you stay on your feet by covering your debts and bills, until you can get back into work. However, income protection will give you a stronger safety net.
I appreciate this is a lot of information to take in, I have left my contact details in the description, if you have any questions, alternatively, please put a comment below.