For whom is ASU suitable?

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For whom is ASU suitable?

Accident, sickness and unemployment cover might only be short-term and narrow in scope, but it can be a stepping-stone for people who have never considered any form of insurance before, or a safety net for those without savings. 

Jason Berry, director of sales for Uinsure, states: “ASU is essential for anyone who doesn’t have a financial security blanket to fall back on.”

With figures from Scottish Widows showing 21 per cent of Britons would not be able to cope if serious illness were to strike their household, it is important people consider a form of income protection (see Box Out).

Ben Heffer, insight consultant, life and protection, for Defaqto, elaborates: “Most people need some form of income protection because few people have sufficient savings to maintain their lifestyle for very long, should they be unable to work.

“On average, people in the UK only have sufficient savings to keep going for two to three months. Therefore, protecting your mortgage payments and/or a proportion of your income is a wise strategy.”

Mr Berry adds: “Essentially, people should ask themselves what they would do if they were unable to work for a prolonged period of time. Do they have the savings to fall back on? If not, and few people do, ASU is invaluable.”

As such, ASU can be a good product for those on a limited budget, people who have little financial knowledge and want a simple product, or for people who need particular cover at a particular point in time.

This is the view of Jennifer Gilchrist, protection proposition design specialist for Royal London, who comments: “People think protection cover is expensive but even for a small budget you can get some form of income protection.

“This not only provides a person with needed health support but also with financial support for a time thereafter. ASU can be good for this, as it covers sickness and unemployment together.

“Yes, it is limited, but it might suit someone’s budget and their needs at a specific time. It might also be a good starting-point for people getting financial advice.”

While Royal London does not offer ASU, Ms Gilchrist said she could understand why some people might think the ‘u’ bit is particularly important: “You never know what could happen any day – people could lose their job and the economic situation is uncertain.

“They may need the sort of breathing space that ASU can provide. Advice is key to them getting the right cover at the right time.”

Specific needs

Are there any specific circumstances in which ASU might be a stand-out choice for certain clients?

Rob Harvey, adviser at Drewberry, believes ASU might be a good fit for clients who do not have long-term liabilities, for example people without families, or who intend to rent for a short while.

He says: “We would caution against this for someone with a mortgage or a young family, because of the short payout length on the accident and sickness side of the policy.”

ASU may not be suitable for the self-employed on the unemployment side, but it can be used to cover all regular bills. Dean Mason

He explains this is because the risk is a person could suffer from a long-term illness and begin claiming on your ASU policy, but benefits end after 12 months and the individual may still be not fit enough to go back to work.

“At this point you're uninsurable for the condition that's keeping you from working but aren't entitled to any more insurance payouts. This puts you in a difficult position if you had long-term liabilities or a family to protect,” Mr Harvey cautions.

The DIY or first-timer

ASU might also be good for people who have never approached a financial adviser before, or who have never taken out any protection before, and who might want to take small steps towards more comprehensive cover later on down the line.

The relative ease with which people can take out ASU, without extensive questions and underwriting, and the ability to get cover online, can work to the advantage of busy individuals.

Young people, particularly, might be a good fit with ASU. Kesh Thukaram, a founding director of Best Insurance, explains: “Millennials would definitely benefit, particularly as many do not have savings to fall back on, and they cannot afford to buy their own home, so are caught in the costly rental trap.”

First-time buyers and renters

Some individuals may have taken out mortgage payment protection insurance when they became homeowners, but as Mr Heffer says, these will not generate enough funds to cover household bills in addition to the mortgage payments.

Moreover, MPPI is obviously not available to those who rent. Therefore, he says: “Short-term income policies can help cover a percentage of your income, calculated to cover rent, mortgage, and household bills.”

Mr Thukaram summarises: “The self-employed, people with mortgages, families with single earners and those with children’s expenses might also benefit.”

People in established careers

People who have been in employment for a while may start to get nervous about the economy or the way in which their sector seems to be moving.

Think of high-street retail staff, watching the demise of names such as BHS, Toys R Us, Homebase and Poundland, who have had to close several branches or shut up shop completely. It would make sense for such workers to consider getting some form of protection should their own store become a newspaper headline in the months to come.

Mr Harvey elaborates: “"The unemployment element would cater much more towards those in established careers rather than the more transient work often undertaken by younger people in the gig economy, for instance.”

He says self-employed people will find it harder to make a successful claim, as often people need to be employed on a proper contract for at least six months, and if someone tries to claim as a sole trader, they could be in breach of the stipulation on the terms and conditions that they are suddenly put out of work through no fault of their own.

ASU is really a poor man’s income protection plan. Alan Lakey

Dean Mason, director of Masons Financial Planning, says: “ASU may not be suitable for the self-employed on the unemployment side, but it can be used to cover all regular bills [in the event of sickness], including mortgage or rent.

“ASU is therefore suitable for anyone who received little or no sick pay from their employer and who could not manage their monthly financial commitments if their income ceased.”

Things to consider

Often employers will offer a period of sick pay, as well as providing support and rehabilitation services through group income protection or group private medical insurance, which can help get employees back on their feet and back into work.

In some cases, according to Steve Devine, chairman of the Protect Association, some employers will pay one’s full salary for a long period of time. In other cases, if someone qualifies for statutory sick pay, they can get the minimum £92.05 a week from the employer for up to 28 weeks.

If the cover offered by the employer is comprehensive enough, having a full ASU might not be needed by individuals; perhaps they may only need the unemployment element.

Mr Devine adds: “You should check what the employer will pay, and for how long, as this will affect the waiting period before the insurance payouts start and, consequently, the cost of the cover.”

However, it is also worth checking what sort of redundancy and severance packages are being offered by employers – sometimes these could be generous enough to offset any need for short-term unemployment cover.

Alan Lakey, founder of CI expert, goes further. He believes: “ASU is really a poor man’s income protection plan.

“There may be occasions when the occupational underwriting may be less severe within an ASU plan, but with the advent of short-term income protection plans, cost should not be an issue. IP should be the default and only dismissed if cost or any other aspects make it unsuitable.”

As Peter Hamilton, head of market management for Zurich UK, adds: “Whether these plans are attractive or appropriate will depend on what your employer might provide, your budget and how long you want cover to last.”