Explaining accident, sickness and unemployment insurance
- 16TH JUNE 2007
Accident, sickness and unemployment insurance can be called ASU insurance which is simply shortening the name by using the initial letters of the coverage areas says Simon Burgess, Managing Director of British Insurance. The simple intention of the insurance is to pay out a fixed monthly benefit if the inured person is unable to work due to accident, sickness or involuntary unemployment. The benefit period is limited and a typical maximum period would be 12 months.
The insured chooses the level of monthly benefit they want to insure subject to certain maximum underwriting limits. The insurers want to make certain that the benefit level is set so that there is a financial incentive for you to go back to work whilst still making the benefit level high enough to protect your life style.
The premiums are usually set at so many £ per month per £100 pound of monthly benefit purchased. The premiums are not affected by factors such as age, health and smoking habits so the application form is short and most of the questions are aimed at seeing if you are eligible to have the insurance.
This simple type of cover can be known under several different titles such as mortgage payment protection insurance when the policy is specifically designed to cover mortgage payments. It can be called loan payment protection insurance when the cover is tied to repayments of a particular loan. Sometimes payment protection insurance can be used as a general title for this type of insurance.
What ever name is used to describe the cover there are some very similar general comments that tend to apply to all types.
Most people who purchase such cover do so because is it reasonably priced and they are concerned what would happen financially if they were unable to work and lost their regular income. It is for that reason that this type of cover is often sold when people are taking on extra financial commitments such as a loan or a mortgage.
Whilst the cover is usually reasonably priced the cost can vary substantially from provider to provider. Some banks and lenders have been criticised that the products that they sell are more expensive than others in the market place. Customers are grateful to be able to borrow money and as a result may feel obliged to say yes to any accompanying insurance on offer. You are advised for your own sake to shop around. There are some specialist insurance brokers around, especially those who sell on the internet with low overheads, who can offer this type of cover at less than £4 per month per £100 of monthly benefit. You may also find that the cover is better as well.
All ASU cover requires you to be unable to work for a certain period before a claim is eligible for payment. The minimum period is usually 30 days but can sometimes be 60 days. Now policies then differ on how they then treat payment of the benefit. A good policy will back date the benefit to the first day you were unable to work provided that the off work period exceeds 30 days. The not so good policy will only start to add up benefit payable once the 30 or 60 days waiting period has passed. So you could loose one or two months benefit. The benefit is also paid in arrears. If you get ‘back to day one’ benefit then you could be looking at receiving payment soon after the full 31 days have passed. If however no benefit is paid for the first 60 days then you will not be looking at any benefit cheque until after 90 days (60 day excess period plus the first 30 days of benefit period). That can be a long time if no income is coming in.
Specialist insurers are often more flexible on how you purchase the cover by allowing you to purchase accident and sickness or unemployment cover separately or combined. That may be an important decision if one part of the cover is not very suitable for you.
So for the reasons of price, flexibility and cover alone you are encouraged to shop around and not to assume that you must purchase the cover from the firm who is also arranging the loan/mortgage. This is important because lenders will often automatically include the cover as one of the options they present to you. That can be seen as an important way of bringing the cover to your attention, but it also can imply that the purchase of the insurance is somehow related to the granting of the loan/mortgage, which should not be the case.
Please remember that if the protection is covering a mortgage, then over the period of the mortgage, even a small saving of monthly premium will add up to a large amount.
ASU insurance is not suitable for every one and you should be aware of some of the usual exclusions. You are recommended to read the policy summary and policy wording carefully.
Here are just some of the typical exclusions you should be aware of. There are several more and this is not an exclusive list.
If you are self employed then the cover will normally require that your business ceases to trade and is in the process of being wound up before unemployment will be deemed to have occurred.
Redundancy/unemployment must be involuntary so taking early retirement or voluntary redundancy is excluded.
Unemployment caused by previous disabilities is also excluded. A previous disability is something you suffered from before the policy started. Chronic conditions are also excluded.
If the cover is suitable and you can obtain it as a reasonable price and you do not have any other form of protection then you may well draw the conclusion that this is a form of cover you should seriously consider.
