Accident, Sickness & Unemployment Insurance
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What is Accident, Sickness and Unemployment insurance?
Accident, Sickness and Unemployment insurance (commonly abbreviated to as “ASU”), is a form of short-term income protection usually most suited for employees as opposed to self-employed professionals.
Combining the coverage of Accident & Sickness Insurance together with standalone Unemployment Insurance, ASU policies protect policyholders by paying out a monthly benefit if they are unable to work due to an accident, sickness, or involuntary redundancy.
Depending on the policy, the monthly benefit can generally be up to 65% of pre-tax earnings, and the benefit period can last between 12 and 24 months. Policies with longer benefit periods are generally more broadly referred to as Income Protection.
ASU policies have become more commonplace in recent years as many insurers exited the standalone Unemployment Insurance market following the coronavirus pandemic.
Why have ASU insurance?
It is a well-known fact backed up by UK Saving Statistics that the vast majority of UK households would run out of money in less than three months if they had to survive solely on their savings.
For many families and individuals, the financial hardship caused by a prolonged period without a proper income is likely to be the result of an unwanted surprise such as an accident, illness, or involuntary redundancy. This is where ASU insurance comes into play, providing the financial stability of a replacement income to ensure essential expenses like mortgages, rent, and bills can still be met.
Even for those who are fortunate enough to have substantial savings, an ASU policy may still make sense to protect that hard-earned cash from rapidly disappearing.
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How does ASU Insurance work?
What does an ASU policy cover?
The Accident & Sickness element of an ASU policy will cover an individual if an eligible injury or illness prevents them from being able to work. Policies can offer consumers different level of incapacity which clearly define “being able to work”. Commonly these are referred to as “Own Occupation“, “Suited Occupation” and “Any Occupation“. The Unemployment Cover of any ASU policy is likely to include involuntary redundancy and company closures. For more information please read see ASU Eligibility and Exclusions.
How long before an ASU policy pays out?
This is determined by the “Deferred Period”. Sometimes referred to as the “excess period” or “waiting period”, this is the length of time before the insurer will start making the Monthly Benefit payments. The policyholder can normally choose the length of the deferred period to be either 30, 60, 90, 120, or 180 days. The longer the Deferred Period, the lower the monthly premiums.
How much will an ASU policy pay out?
The “Monthly Benefit” can generally be up to 65% of gross pre-tax earnings, with many insurers capping the Monthly Benefit of ASU policies around £2,500. If the ASU policy’s monthly premiums have been paid by an individual (as opposed to a company), it is the Monthly Benefit should be tax-free. Those in need of a higher Monthly Benefit will need to consider a more comprehensive Income Protection policy.
How long will an ASU policy continue to pay the monthly benefit?
The Payout Period (sometimes referred to as the “Benefit Period” or “Policy Length”) is the maximum amount of time a policy will continue to pay the Monthly Benefit. For ASU policies this is usually either 12 or 24 months.
How Much Does ASU Insurance Cost?
Depending on the level of cover provided, the monthly premiums of an ASU insurance policy are likely to be equivalent to approximately 1% – 5% of monthly gross earnings.
The main factors which affect the cost of an ASU policy are listed below with a brief explanation as to how these factors affect the cost (all other aspects being equal):
The higher the monthly benefit chosen by the policyholder, the higher the monthly premiums will be.
Monthly premiums typically increase as policyholders age. This reflects the increased risk of health-related issues and recovery time needed for common accidents.
Policies that begin paying the monthly benefit after 30 days will have higher premiums than policies which pay out after 60 or 90 days.
Health & Smoking Status
A non-smoker with no pre-existing conditions will enjoy lower premiums than a smoker with existing health issues.
ASU policies for low-risk, office-based roles are likely to have cheaper monthly premiums than those for high-risk, hazardous professions such as construction workers.
An ASU policy with a benefit period of 12 months will have a lower monthly premium than the same policy with a 24-month benefit period.
As outlined above, “Own Occupation” policies will have higher monthly premiums than “Suited Occupation” or “Any Occupation” policies.
What to consider before taking out an ASU policy.
A specialist broker will also help save a great deal of time and assist with finding the best value.
Before setting up a new policy, some of the considerations a broker will likely want to discuss are:
It’s important that the monthly benefit of an ASU policy does not fall short of the policyholder’s financial commitments.
Some policies are better designed to meet the needs of specific professions, and some policies may not be well suited to higher risk occupations. Additionally, some occupations may not be able to obtain ASU insurance, this can be due to market conditions or rapid decline in the demand for certain skills / trades.
Existing Insurance Policies
Are there already any insurance policies in place that specifically cover mortgage or loan repayments? If so, the monthly benefit of any ASU policy should bed reduced to take these into account. Alternatively, in certain circumstances it may be appropriate for other policies to be consolidated into one.
Industry & Employer
Insurance providers offering ASU policies will regularly update lists of specific industries and employers they will not provide Unemployment Cover for from one month to the next. For example, if a large company which is listed on a stock exchange has announced poor quarterly figures, it is possible that insurers will not accept new ASU policies from employees of that company and instead offer Accident & Sickness only. This can apply to entire industries if they are experiencing a downturn.
In many cases, ASU policies are unlikely to be the most suitable product for self-employed professionals or contractors. Since part of the policy covers redundancy intended for employees, there are simply better products available. An Accident and Sickness Insurance for Self-Employed policy or an Executive Income Protection policy is likely to be more suited to their needs.
Check the length of any contractual sick pay provided by your employer. In many cases, employers may pay just 30 days before reverting to Statutory Sick Pay, which as of August 2023 is just £109.40 per week. If contractual sick pay is offered for a period of 90 days, then an ASU policy should have a deferred period of 90 days to ensure continuity and that the monthly premiums are not higher than necessary.
Check any employment contract for mention of redundancy payouts or severance packages. A guaranteed severance package in the event of involuntary redundancy may determine that the Unemployment element of an ASU policy is not required.
Those fortunate enough to have enough savings to see themselves through a prolonged period without an income should still carefully consider whether they would want to use their savings for that purpose. However, since a longer deferred period can greatly reduce monthly premiums, it may be suitable to increase the deferred period to 90 or even 180 days.
Eligible Claims & Exclusions
Any ASU insurance policy has to define the level of incapacity upon which the policy will payout. To do this, insurers often use one of three definitions of incapacity which sometimes can be selected by the policyholder when the policy is first set up. These are:
This definition of incapacity means that the policyholder will be entitled to the monthly benefit if an accident or sickness prevents them from being able to perform the duties of their specific job.
For example, if a driving instructor were to break their leg or arm they would not be able to teach driving students until they had recovered and regained full strength and movement and were medically cleared to return to work. Even though the driving instructor could potentially still teach driving theory in a classroom environment, an Own Occupation policy would define them as incapacitated and the claim would be eligible.
In most cases, customers of Black Lion Insurance looking at any type of Income Protection want the level of cover offered by “Own Occupation”.
This level of incapacity means that the policyholder is entitled to the monthly benefits if an accident or illness prevents them from being able to perform a similar occupation suited to their skills, experience and qualifications.
For example, a project manager for a software company is diagnosed with Chronic Fatigue Syndrome which diminishes their ability to concentrate on highly complex tasks. Given their experience there are many less demanding and less responsible roles which they may still be able to undertake and would be conducive to their needs. In this scenario, because the medical issue does not prevent the policyholder from being able to work in a similar role, the policy is unlikely to pay the full monthly benefit although depending on the specifics of the policy, may top-up income if it were to drop below the amount of the insured monthly benefit.
This is the lowest level of cover a policyholder can have in terms of how incapacity is defined. Only if the policyholder is completely unable to undertake any employment would the policy pay the monthly benefit. Black Lion Insurance is generally highly unlikely to advise this level of cover unless there is a very specific purpose for such a policy.
Accidents and Injuries
It generally doesn’t matter whether the accident occurred at home or work, or whose fault the accident was. Even if the accident was the result of a third party’s negligence, the policy is still likely to be valid for a claim, although the insurer may look to separately recoup their costs from the third party at fault.
Common types of physical injury would include fractured and broken bones, torn ligaments, and back, head, and spinal injuries. Less common injuries might include those to the eyes or internal organs.
Almost all insurers will have a list of exclusions which is likely to include injuries:
- Caused whilst committing a criminal act
- Which are self-inflicted, due to alcohol, drug abuse, or misadventure
- Sustained whilst pursuing hazardous pastimes*
- Suffered whilst working abroad (unless otherwise agreed)
- Resulting from war / serving in the armed forces
*Insurers may cover injuries sustained whilst pursuing certain pastimes but will almost certainly exclude injuries sustained as a result of a hazardous pastime such as rugby, unless the policyholder has increased the level of cover to include this.
Sickness and Illnesses
Serious medical conditions such as heart attacks, strokes, respiratory diseases, neurological conditions, and certain types of cancer are, of course, likely to require the patient to take time away from work.
In general, most policies are likely to exclude:
- Pre-existing medical conditions
- Stress, anxiety, or depression
- Standard pregnancy without complications (complication arising during pregnancy may be covered)
It should be noted that not all serious medical conditions are guaranteed to lead to an eligible claim. For example, whilst still worrisome, a diagnosis of a highly treatable early-stage cancer such as Melanoma (skin cancer) may not require the patient to take a prolonged period off work.
Policies normally require that the policyholder has been in permanent employment with the same employer for at least 6 months prior to the start of the policy and is out of any probationary period.
Most policies also require that the policyholder is employed for 16 hours or more and not on a “zero hours contract”.
Policies will not pay out for:
- Resignations or voluntary redundancy
- Unemployment due to misconduct or industrial action
- Unemployment which was known about at the time the policy was taken out or the policyholder became aware of during the first 3-6 months of a policy’s start date.
Accident & Sickness vs Income Protection
Answering 'What's the difference between Accident & Sickness Insurance and Income Protection?', this article looks at the key differences, compares example quotes and considers the potential suitability of both policy types for two self-employed professionals with very different occupations and personal requirements.
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Part of Halo Consulting, Black Lion Insurance are a dedicated team of insurance consultants with years of experience in guiding our clients to a solution that meets their specific needs. We specialise in helping both employed and self employed individuals, as well as business owners on a variety of solutions, which range from life insurance, income protection insurance, keyman insurance and shareholder protection insurance.