Usually, the name of an insurance product is all you’ll need to find out what it covers. There’s no room for confusion when one is shopping for buildings and contents insurance or life insurance, but there are two types of insurance which, at a glance, would seem to serve the same purpose. Both income protection insurance and accident, sickness and unemployment (ASU) insurance serve to maintain a steady flow of income for the policy-holder should they find themselves unable to work – but there are very distinct and clear differences between the two. Being aware of these differences should make it easier to decide which of the two is right for you.
The primary distinction between the two is the length of time the policy is meant to last. Income protection insurance is intended as a long-term policy which can run indefinitely, only ending when the policy holder returns to work, retires or passes away. This makes it the insurance product of choice for those with long-lasting or recurring health problems such as a disability, heart issues or mental illness. ASU insurance, on the other hand, is a shorter-term policy (the exact length is determined by your provider) intended to replace earnings should the policy holder find themselves unable to work due to sickness or accident or (unlike with income protection insurance) unemployed. Where illnesses covered by income protection insurance are usually long-term problem, ASU is normally taken out to cover ailments that last at most a period of several months, and injuries that are not the policy holder’s fault, such as those attained in a car accident.
Because the length of an income protection plan is indefinite, the level of underwriting and policy setup time is greater. Those wishing to take out income protection insurance may need to provide detailed doctor’s reports and undergo a medical – however, once the policy is in place, the policy holder needs to do little else, as they are able to claim until they retire and the chances of a claim paying out are extremely high. As accident, sickness and unemployment plans only allow the policy holder to claim for a maximum of two years, setup procedures are less stringent, but the chances of a successful claim are not as high.
In the event of a successful claim, those with ASU insurance have limited spending options. As ASU policies are only intended as a short-term stopgap either during sickness or between jobs, the payouts are usually directly linked to the policy holder’s mortgage or loan repayments or general bills. However, if unable to work due to illness or injury, ASU policy holders are entitled to claim sick pay on top of their insurance claim. Income protection insurance doesn’t impose limits on what successful payouts can be spent on, but only allows claimants proportional amounts of sick pay.
On the surface, income protection insurance and accident, sickness and unemployment insurance seem to do identical jobs. But it’s crucial to be aware of the nuances that set the two apart to ensure financial security for you and your family should you find yourself unable to work. When shopping for an insurance plan, use a reliable intermediary such as Freedom to Insure, who will be happy to advise on which is the correct product for you and will compare quotes from the entire UK market to find a plan that suits you for a price that won’t break the bank.