Six reasons to consider this insurance
Accident, sickness and/or unemployment insurance
Accident, sickness and unemployment insurance (or ASU for short) basically does what it says on the tin – it is an insurance that pays out in the event of accident, sickness or unemployment. How it works is that should you become unable to work due to one of these involuntary events, then the insurance will pay out a tax free amount every month. This means that at a difficult time financially and emotionally/physically, you will still have an income with which to meet your outgoings. This will help relieve any worries stress and allow you to concentrate on getting better or finding alternative employment.
How soon can I make a claim?
Also known as payment protection insurance (or PPI), the policy terms and conditions do vary among providers, but you can normally make a claim on your ASU insurance policy anywhere from 30 - 90 days after you are made involuntarily redundant or become incapacitated.
There are some generous providers who will back pay your claim to the very first day that you are unable to work, so look out for policies that provide this benefit.
How long will I receive the benefit for?
Once you have made a claim, the policy will run for 12 – 24 months, depending on the provider’s policy features and benefits. Obviously, if you get back to work within this period, then the payments will cease.
Different types of cover
There are three main types of accident, sickness and unemployment insurance that you can buy, two which are debt specific - mortgage payment protection insurance and loan payment protection insurance - as well as the general income payment protection insurance.
Protecting your mortgage
Mortgage payment protection insurance (MPPI) is a form of accident, sickness and unemployment insurance where the monthly benefit is used to help maintain your mortgage repayments. This stops you falling in to arrears and gives you the peace of mind that you are still financially able to keep a roof over your head even if you are made redundant or are incapacitated.
Some providers will also provide the monthly benefit if you have to leave work to become a full time carer for a loved one.
Protecting your loan repayments
Loan payment protection insurance helps you continue to service any loan commitments should you become a victim of accident, sickness or involuntary unemployment, or you have to leave work to become a full time carer. Like MPPI, this benefit can stop you falling behind on your repayments in the event that you are without an income by providing a monthly tax free sum.
Both these forms of accident, sickness and unemployment insurance also protect your credit file too. Without them, any missed payments would be reflected on your credit file which could affect any future borrowing.
Protecting your income in general
The third type of ASU insurance is income payment protection insurance. This covers a percentage of your income and can be used for whatever purpose you wish, whether it be to pay for day to day living costs; fuel to get to a job interview; groceries; or your rent. It is not debt specific.
This form of accident, sickness and unemployment insurance should not be confused with income protection insurance. This is a long term form of health insurance policy that pays out in the event of accident or sickness only (not unemployment) and could run until you retire. Obviously, it is much more expensive than income payment protection insurance we are discussing here and a medical is usually required in order to take the cover out. With accident, sickness and unemployment insurance, no medical is required, though you do have to disclose any pre-existing medical conditions that may affect any claim, and premiums are a lot cheaper.
What if I don’t need to cover employment?
The beauty of this product is that you can tailor it to suit your needs. For example, if you only want to protect against the possibility of becoming too ill to work, then you can elect to have accident and sickness (incapacity) cover only. You may feel that if you were made redundant, then your severance pay would tide you over until you found another job.
What if I don’t need accident and sickness insurance cover?
On the other hand, you may only want to protect against unemployment. For example, your employer may have a very generous sick pay scheme which would not see you suffer financially should you be incapacitated for a while, so you may only want to protect against unemployment. Again, you can do this with unemployment only cover.
The choice of the level of coverage you elect to buy depends on your own individual circumstances, as does where you buy your payment protection insurance policy.
Often, when people take out a loan or mortgage, their lender will offer them an accident, sickness and unemployment insurance policy at the same time. Many borrowers report feeling pressurised in to buying the lenders’ own product and are not aware they can shop independently for the cover.
Buying direct from a high street bank or lender can often work out very expensive too. Both these failings have been highlighted by organisations such as the Office of Fair Trading and the Financial Services Authority. In fact, the whole of the payment protection insurance industry is now under review by the Competition Commission who are putting new guidelines into place. This will see lenders being unable to sell accident, sickness and unemployment insurance at the same time as a loan, mortgage or other borrowing (such as a credit card), leaving the consumer free to shop around.
Go independently for accident, sickness and unemployment insurance
By shopping around among the standalone providers for your accident, sickness and unemployment insurance you can buy good quality cover from as little as a few a pounds a month. This means that you can protect your finances against the unexpected at a price that will not make a huge dent in your budget. More importantly, it will give you the peace of mind that you will be able to stay financially afloat even in times of incapacity or involuntary unemployment.
A guide to income, loan and mortgage payment protection insurance
