What is the difference between ASU and income protection insurance?

5 min Read Published: 22 Oct 2021

Reader Question: What is the difference between ASU and income protection insurance?

What is the difference between ASU and income protection insurance and ASU?I am a bit confused on the difference between ASU and income protection insurance - can you help explain? I'm looking to protect my income but am going around in circles with all the different terms.

Thanks

Mr D Shaw

My response:

Accident sickness and unemployment insurance (ASU) and Income protection insurance appear very similar products, both paying out an income if you are unable to work.

However, these two types of insurance policies are quite different and choosing the correct one for your particular needs can have a real effect on your household finances. Below I look at the difference between ASU and income protection insurance before looking at when you might choose each to provide peace of mind that you can meet your financial commitments.

What is Accident sickness and unemployment insurance?

  • accident sickness and unemployment insurance (ASU) will pay out a regular income if the policyholder is unable to work due to illness, being injured in an accident, or being made redundant by their employer
  • ASU is a short term insurance policy which means that any benefits are only paid out for a short period of time, typically 12 to 24 months
  • the level of cover is based on the basic monthly outgoings of the policyholder and is typically restricted to 60-65% of monthly income but paid tax free
  • ASU insurance policies generally include standard exclusions which may include any musculoskeletal conditions and mental illness which can be among the most common reasons for time off work that leads to claims.
  • one of the downsides to ASU cover is that the policies are usually annually renewable meaning that the premiums and the cover can change each year and in a worst-case scenario, your cover may not be renewed after a claim.
  • premiums are usually paid monthly and the policy is simple to set up

What is income protection insurance and how does it differ from ASU?

  • Unlike ASU which provides benefits if the policyholder becomes unemployed, income protection insurance will provide a regular income if the policyholder is unable to work due to illness or injury only
  • With Income protection insurance policy benefits are usually paid out until the policyholder can return to work or retires or they reach the end of the policy term providing more long term financial security
  • the level of cover is typically restricted to 60-65% of monthly income like ASU and paid tax free
  • setting up income protection insurance is more complicated than ASU insurance requiring detailed answers to personal and medical questions and making choices between short term and long term types of income protection
  • due to the more comprehensive cover offered by income protection insurance the monthly premiums may be higher than for ASU insurance

Which insurance should I choose ASU or income protection

  • ASU and income protection insurance are quite often confused but are actually quite different policies
  • the main differences are the length of time potential benefits are paid for and the permanency of the insurance
  • ASU may be attractive because it doesn't ask health questions but there are usually more standard exclusions attached to these types of insurance and they generally won't cover pre-existing medical conditions
  • income protection will require a medical and lifestyle questionnaire to be completed and these details will be taken into account when setting the premiums for your policy but you do have the peace of mind that you're covered more comprehensively once your insurance is in place
  • as with all types of insurance the best choice will depend on your own circumstance so always seek independent financial advise before deciding the best policy for your needs
  • neither ASU nor income protection benefits stop you from receiving statutory sick pay