ASU insurance and income protection insurance both appear to do the same job - paying out an alternative income if you aren't working

However, the two types of policy are actually quite different in design and choosing one over the other has real implications for your household finances should you lose your job or fall ill.

We show you how to decide between them:

ASU insurance

Accident, sickness and unemployment insurance (ASU) pays out if you lose your job or become unable to work through illness, injury or redundancy.

It's often referred to as short term income protection insurance or payment protection insurance because payouts are restricted, so that you can only claim for a maximum period of between 12 and 24 months.

Cover levels are based on your mortgage and monthly outgoings, and while you get to choose the amount payouts will usually be limited to 60-65% of your income.

You'll pay a monthly premium for the cover, which rolls over month by month until you cancel the policy or make a claim. This makes ASU insurance relatively informal and easy to take out.

Income protection insurance

Income protection gives you longer-term cover if you're unable to work for health reasons.

Similar to ASU, income replacement policies are based on your current earings up to a maximum of around 65%, but importantly they don't usually cover redundancy.

The major difference is that income protection policies are intended to be long term - they'll pay you indefinitely until you can return to your job, find another job or even until you retire.

Some policies will only pay out if you can't perform any work, rather than simply being unable to remain in your existing role. On the other hand the better policies will protect your existing job, but they'll also cost more.

Their more comprehensive level of cover means taking out an income protection policy tends to include detailed personal questions and a medical. This type of cover is also significantly more expensive than shorter-term ASU.

What sick pay are you entitled to?

Before you buy into any policy it's worth checking what help you'll be entitled to from other sources.

Some employers have a sick pay scheme built into their employment contracts, also known as a company or occupational scheme. Even if they don't, employers are required by law to give you Statutory Sick Pay (SSP) provided:

  • you are classed as an employee (including agency workers)

  • you earn at least 109 per week, before tax

  • you tell your employer you're sick within an appropriate timeframe

If you meet these criteria and you've been off work sick for at least 4 days in succession (including weekends & non-working days) you can start claiming Statutory Sick Pay, currently set at 86.70 per week for up to 28 weeks.

Different rules apply for Agricultural Sick Pay, and different rules again apply within Scotland. You'll only get paid SSP for the days you would normally have worked, and it is subject to Tax and National Insurance.

Which should you choose?

If you'll need more financial help than SSP and/or your company scheme can provide, it makes sense to protect yourself with an ASU or income protection policy.

The major difference between these types of policies hinges on why they pay out and how, so you'll need to think carefully about your circumstances, what you want to be covered for and how much it's worth you spending on premiums.

Did you know?

Which ever cover you choose, you'll need to disclose any dangerous pastimes, existing medical conditions and lifestyle habits to make sure your policy stacks up.

Both types of policy require a deferred "off work" period before they'll pay out, however some policies will backdate their payout to the start of your claim.

If you don't have many outgoings or significant liabilities ASU should help you stay on your feet by covering your debts and bills over the short term, until you can get back into work. Compare ASU policies online before you buy to cover all bases.

However, longer term income protection will give you a stronger safety net.