What is ASU and how does it work?

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What is ASU and how does it work?

What are the features of ASU and how does it work?

Accident, sickness and unemployment (ASU) cover pretty much does what it says on the tin: provides some level of protection in the event of an accident, being off work due to sickness and in the event of forced redundancy.

ASU falls under a general insurance category known as Creditor Insurance, but it should not be confused with traditional payment protection insurance policies, which only cover people for one financial commitment, such as a loan or mortgage repayment.

ASU can also be called short-term income protection insurance (STIP) or mortgage payment protection insurance (MPPI).

Ben Heffer, insight consultant, life and protection for Defaqto, comments that with MPPI, the level of benefit is defined by the amount of one’s mortgage payments, plus an additional amount to cover mortgage-related outgoings, such as building and contents insurance premiums.

With STIP, the benefit is defined as a percentage of an individual’s income, up to a maximum of typically 65 per cent of gross income. 

There is some flexibility over the scope and features of ASU, according to Steve Devine, chairman of the Protect Association. He says people can choose between: 

  • Accident and sickness policy.
  • Accident, sickness and unemployment.
  • Unemployment only. 

Individuals can buy unemployment cover by itself, not just packaged within an ASU policy, and it pays out in the event of forced redundancy for a maximum of one year. 

An obvious caveat is the cover applies only if the client loses the job through no fault of their own; it will not cover them if they just leave their job and do not have another one to go to, for example. 

Mr Devine states that full ASU “covers accidents, short and/or long-term illnesses, redundancy and involuntary unemployment, but excludes pre-existing conditions, most back and stress-related conditions, misconduct or voluntary redundancy.

“You can choose which is best for you. For example, a client’s employer might provide great sick pay, so the individual may only be concerned with unemployment insurance.”

Cost considerations

Zurich UK does not offer ASU but, as Peter Hamilton, head of market management for Zurich UK Life says, the key focus with ASU is “what people are trying to protect against: the financial implications of sickness, injury or unemployment, and how best to do that. 

“An ASU plan will look to bring these together, but there are limitations as they are often short-term, renewable contracts with little certainty about ongoing availability of cover.”

However, he acknowledges that the simplicity and relative low cost of ASU is an important factor for many individuals and their advisers. 

Mr Hamilton comments: “These are relatively simple, and may appeal to those where cost is a real issue in terms of cover.”

When compared to other optional insurances, the value and ROI with an ASU policy is one of the highest. Kesh Thukaram

Kesh Thukaram, a founding director of Best Insurance, elucidates on the cost considerations. “ASU provides a monthly benefit. The maximum monthly payment ranges from £2,000 to £3,000 a month, although most providers restrict their benefit to £2,000.

“An average investment of £1 a day enables policyholders to cover themselves for about £1,000 a month when a claim is paid, and the benefits can continue for up to 12 months.”

Mr Thukaram contests that, even if someone renews their policy every year for 10 years, and makes a claim in the 10th year, the return on their investment would be 300 per cent. 

“When compared to other optional insurances, the value and return on investment with an ASU policy is one of the highest,” he avers.

How it works

According to Rob Harvey, adviser at Drewberry, the protection cover is short-term, lasting for 12 months or so typically, and is renewable annually. 

He adds: “That means if you become ill, injured or are made redundant you can make a claim for a maximum of 12 months.”

Says Jason Berry, director of sales for Uinsure: “The provider will give the client a proportion of their salary during the time they are unable to work, so they can keep up with financial commitments.”

Mr Heffer explains there is some flexibility over the term, and there are different options for clients.

He says: “Most policies on the market pay out for up to 12 months; some can be arranged with shorter payment terms, such as six months; and a few can be set up for 24 months.”

Typically, there is an excess period of 30 days. This means that following a claim, there is a period of 30 days before any benefit becomes payable. Mr Heffer adds: “Other excess periods can be selected, for example, 60 days and 90 days, and the cover is therefore cheaper, but the client may not be able to cope financially in the meantime. 

“Most plans allow optional Back-to-Day-One cover, which means that after the excess period the first benefit payment is back dated to cover the period since claim.”

However, Back-to-Day-One cover is a more expensive option, so it is worth considering this when discussing short-term protection needs with clients. 

Potential pros and cons

For Dean Mason, director of Masons Financial Planning, ASU “provides peace of mind for clients concerned about losing their jobs or being unable to work due to an accident or short-term illness.”

Also, as standard, ASU products should include legal expenses – including employment disputes – for all members in the household, plus carer and hospitalisation cover. 

Yet while unemployment cover is “much the same across the market”, meaning it is relatively easy for advisers to compare similar cover, according to Mr Harvey, there are significant differences between the accident and sickness element of ASU and policies such as income protection (IP) and critical illness cover (CIC).

This means clients might need to consider ASU alongside other types of insurance.

Mr Harvey explains: “IP can be long-term, meaning it can pay out until retirement age if you're unfortunate enough to be in a position where you can never work again through illness or injury.

“This is opposed to the 12-month payout on ASU policies, which would be very restrictive for many people who develop long-term conditions.
 
"Also, you may find ASU policies have automatic exclusions on the accident and sickness aspect, such as excluding claims for bad backs and mental health without considerable evidence from a UK consultant.”

He says that, given most bad backs and mental health conditions are treated and managed by GPs and a consultant referral can take a long time for these issues through the NHS (if it happens at all), this can be a significant barrier to making a successful claim through an ASU policy.

All clients are accepted on application for ASU, but pre-existing conditions are not covered. Dean Mason

Mr Harvey goes further: “For example, for bad backs, radiological evidence is usually required for a claim – with most bad backs down to muscular issues not typically readily visible radiologically – this again puts another barrier to claiming on an ASU policy for what is one of the biggest reasons for claims on IP policies."

However, Mr Mason says the differences between IP and ASU can sometimes work in a client’s favour: “All clients are accepted on application for ASU, but pre-existing conditions are not covered.

“An IP policy is underwritten upfront, meaning the insurer assesses the risk at application and adjusts the premium if they feel the client is at greater risk.

“With ASU, they are underwritten when a claim is made”.

However, if the claimant has not disclosed a situation – for example, if the employer had already made a public statement about potential layoffs before the individual took out the cover, or they had a pre-existing medical condition for which they were off work, this may invalidate the claim.

This is not the only issue. According to Alan Lakey, founder of CI expert, sometimes clients can find themselves at the mercy of an insurer’s whimsy.

He says: “ASU plans are annual contracts, which is their main weakness. The insurer can refuse renewal, change the terms and – as has happened on numerous occasions – simply leave the market. 

“It operates like a car or house insurance, in that a claim means amended terms at the renewal stage.”

Mr Devine stresses that ASU plans “vary” so it pays individuals to shop around or, better still, take advice. 

He comments: “These might include life cover and other types of protection, so it is well worth shopping around for the right policy for the individual’s circumstances.”