ProtectionDec 13 2018

How ASU stacks up against income protection

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How ASU stacks up against income protection

Accident, sickness and unemployment policies may be good for some people but they are not for everybody, as there are some limitations to ASU. 

Therefore it is worth checking how ASU stacks up against other types of insurance, in particular income protection (IP), which for some insurance brokers, is a more comprehensive and therefore more useful long-term product.

The benefits of ASU

1) Freedom

For Jason Berry, ASU is a flexible product that gives the individual a lot of freedom, enabling people to carry on even if something unexpectedly bad happens.

He explains: “The great thing about ASU is the freedom it provides. Payment protection insurance and mortgage payment protection insurance will cover that one loan or mortgage, but ASU will give you a ‘salary’ so you can carry on with life in as normal a way as possible until you can get back to work.”

The range of redundancy cover options in the UK market for advisers is very limited. Jack Wild

Kesh Thukaram, a founding director of Best Insurance, similarly waxes lyrical, claiming this cover is “ahead of the pack” for clients who need the sort of breathing space that the features of ASU can bring.

He states: “This is one of a few short-term, low-cost policies within the insurance sector that provides claimants with a regular income for up to a year.”

2) The ‘unemployment’ element

If worries over the economy or concern about a company’s profitability are concerning your clients, they might benefit from having some short-term unemployment protection in place. This is where ASU can be very useful.

Rob Harvey, adviser at Drewberry, comments: “Regarding the Unemployment Insurance aspect, it's generally seen as attractive because people tend to consider it the more tangible risk, possibly because it's less pleasant to think about the other risk: sickness.”

According to Mr Thukaram: “This gives people peace of mind that, in the event of redundancy – which can be stressful in itself – they do not have the additional stress of borrowing money to pay their bills.”

Like Marmite, unemployment cover splits insurers into two camps: those who think it is uninsurable, and will not cover it, and those who think it is. Steve Devine

Moreover, redundancy or unemployment cover is a scarce commodity in the insurance world, as Jack Wild, adviser and company director at Jack Wild Consulting, explains.

He says: "The range of redundancy cover options in the UK market for advisers is very limited. Most of the large protection providers no longer offer any form of redundancy protection, which can be frustrating when advising clients.

“LV's MLP was a strong product with guaranteed rates, full IP and a maximum cover level of more than £4,000 a month, but it was unfortunately withdrawn from the market.

"The issue now is that most products available are general insurance products with annually reviewable premiums and lower benefit levels.”

Alan Lakey, founder of CI Expert, is of the same mind: “Redundancy cover used to be offered by a number of traditional insurers, but they have pulled out of the market, leaving ASU plans to offer it as solitary cover, or as a package with accident and sickness cover.”

Steve Devine, chairman of the Protect Association, says: “Like Marmite, unemployment cover splits insurers into two camps: those who think it is uninsurable, and will not cover it, and those who think it is.”

Therefore, with choice being so limited, a combined ASU might be an appropriate option for some clients. Yet even if someone has IP but no unemployment cover, Mr Harvey claims there could be a ‘premium holiday’ to help keep someone covered even if they are currently unemployed.

He says: "Built into some IP policies are features such as premium holidays, which is effectively a waiver of premium in case of loss of job, allowing you to keep your cover if you're not working."

Mr Thukaram confirms Best Insurance has products offering a waiver of premium in the event of redundancy.

Ben Heffer, insight consultant, life and protection, for Defaqto, says while long-term income protection policies are better, they are not designed to protect people against redundancy, so he believes a “good combination” is to buy some IP and buy some unemployment cover separately.

“It’s worth asking if the life assurance company will offer unemployment cover alongside their long-term income protection plan, written by a general insurance company in their group," he adds. 

3) Simplicity

For many providers, ASU is simple and straightforward, making it an appealing product to some people, especially those who have never taken out any form of insurance before.

Mr Devine points to an insurance product information document from PaymentCare, which provides a summary of what is covered, and what is not covered, by an ASU policy. The wording and conditions on the document are clear and simply presented.

It states: “You will receive the agreed monthly payment, subject to the limits of the cover, if the following conditions are met.” These are:

  • You are made redundant (involuntary unemployment).
  • You are unable to work due to an accident.
  • You are unable to work due to sickness.
  • If you are self-employed you will be insured if you have permanently ceased to trade due to circumstances entirely beyond your control.
  • If you are a contract worker and you are made unemployed due to circumstances beyond your control you will be insured if you have been employed on a renewable fixed-term contract of at least 13 consecutive weeks with the same employer for more than two consecutive years or on an annual contract which has been renewed.

Disadvantages compared with IP policies

There are, however, some disadvantages to ASU, not least the fact it is cheap for a reason compared with IP policies: it doesn't go as far or for as long as IP cover.

1) IP is far more comprehensive

According to Mr Harvey, ASU “stacks up relatively poorly” against more comprehensive options such as IP, because of the limitations in the accident and sickness element already discussed.

“Another limitation of ASU cover is that while IP today is largely offered on an 'own occupation' basis, meaning that you're covered if anything medically prevents you from doing your specific job, certain ASU policies still only offer cover on a 'suited occupation' basis.”

Peter Hamilton, head of market management for Zurich, agrees: “There are a number of advantages to more comprehensive IP plans”.

He lists these as including:

  • Pre-existing conditions won’t be excluded.
  • Guaranteed rates mean certainty of cost and cover over the long-term.
  • The level of benefits available will typically be higher, available for longer.
  • IP cannot be cancelled by the insurer, as long as you pay the premiums.
  • IP plans tend to have more options attached, flexibility in terms of cover levels, and changes in circumstances.

2) IP is also good for those in employment

Just because it might not contain unemployment cover or have it as an add-on, IP is still the most appropriate cover for most people in employment, according to Nick Homer, head of market management, corporate risk, for Zurich UK.

He says: “IP is the best solution to provide workers with financial protection in the event of prolonged illness or injury, provided they earn approximately £20,000 or more (typically - however, it depends on their circumstances)."

Mr Heffer agrees: “Limited payment plans provide a financial cushion for those suffering a financial hiatus due to sickness, accident or unemployment, but do not cater for those who experience long-term sickness or disability.

“On average, long-term IP claims can be as much as seven years. Under those circumstances, people with a short-term policy would need to downsize, sell their home and seek some other way of paying off their mortgage before the benefits payments stop.”

3) While ASU covers redundancy - it can be limited

According to Mr Devine, consumers will have to be wary about what exactly is covered under the ‘unemployment bit’ of an ASU policy.

He explains: “If you go on to a comparison website for a quote that includes unemployment you will be asked for your occupation. There is not supposed to be a blacklist of jobs but it is probably described as a watch list.

"Certain industries and jobs are considered higher risk than others and cover could be denied or heavily rated in terms of increased premiums.”

Unemployment cover is attractive because people generally fear losing their income. Dean Mason

Therefore, according to Dean Mason, director and founder of Masons Financial Planning, it is definitely worth checking out whether an insurer’s IP policies do have an option to pay a waiver of premium to ensure payments are kept up if the client loses their job and some have the option to add unemployment cover.

He warns: “Any form of unemployment cover is usually more expensive than other covers because generally you are more likely to be made redundant or lose your job (through no fault of your own) than other events you can protect against.

"For that reason, the unemployment cover is attractive because people generally fear losing their income and in many cases this is more at the forefront of their mind than the fear of death or serious illness.”

Steps forward for ASU

ASU providers have, in recent years, sought to address some of these issues by creating simpler products and improving the terms of cover, as well as keeping costs low.

For example, in 2017, Best Insurance launched its InstaProtect ASU policy, which had no exclusion periods, simplified medical underwriting terms and paying claimants immediately from the day of purchase.

Also, it makes some provision for critical illness, making a one-off £2,500 payment to claimants who develop a qualifying condition, and allows for people to get their GP to confirm the illness, rather than having to wait for a specialist consultant to confirm the sickness.

So while there are limitations to ASU and the policies certainly are not as comprehensive or long-term as IP or CIC, they could be useful for some clients, and do have some beneficial uses - but as ever, it is worth reading the small print.