ASU and income protection both pay an income if you can't work, but choosing the right one is vital to protect your household finances. Here is how to choose the right cover for you.
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, as payouts are restricted so you can only claim for a maximum of 12 to 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 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 earnings, up to a maximum of around 65%, but they don't usually cover redundancy.
The major difference is that income protection will pay you indefinitely until you can return to your job, find another job or even until you retire.
Some policies only pay out if you can't perform any work, rather than simply being unable to remain in your existing role. More comprehensive policies protect your existing job, but they'll also cost more.
Income protection tends to include detailed personal questions and a medical. This type of cover is also significantly more expensive than shorter term ASU.
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 have been ill for at least 4 days in a row
You earn at least £116 per week, before tax
You tell your employer you're sick within an appropriate timeframe
If you meet these criteria, you can start claiming Statutory Sick Pay, currently set at £92.05 per week for up to 28 weeks.
You'll only get paid SSP for the days you would normally have worked, and it is subject to Tax and National Insurance.
Different rules apply for Agricultural Sick Pay, and different rules again apply within Scotland.
If you 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 is why they pay out and how, so you'll need to think carefully about:
What you want to be covered for
How much it's worth you spending on premiums
Both types of policy require a deferred "off work" period before they'll pay out, although 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, until you can get back into work.
However, longer term income protection will give you a stronger safety net.