Lenders and financial advisers often urge clients to look at standalone accident, sickness and unemployment insurance (ASU) as a solution, but these are stopgaps that won’t solve your financial problems if you cannot work long-term.
The danger is the insurer can also cancel your policy at any time and leave you without cover if they feel you have contributed to your own misfortune.
A recent case is 30-stone Barry Fowers, 51, who had to accept voluntary redundancy after an accident at work because health and safety experts deemed his weight was a danger to others if he fell on them while using equipment in his employer’s workshops.
Because Mr Fowers accepted voluntary redundancy, he would not have had a claim accepted under any unemployment policy any way.
His problem now is he is claiming benefits and cannot find another job for the reasons he had to leave work in the first place.
None of us can see in to the future, but most of us consider making financial plans to protect our mortgage and bill payments if we can’t work is sensible.
ASU cover is not necessarily the answer because most insurers only pay a monthly benefit for a maximum 12 months.
After the 12 month claim, the policy stops and if you want further cover, you must reapply – and it’s likely the insurer will not cover any health reason for a payout. This excludes an existing medical condition that might reoccur from ASU cover.
Income protection provides a long-term solution that takes away all the exclusions of ASU.
The difference between ASU and income protection is the protection cover is the first is general insurance and the latter is life assurance.
Income protection is underwritten on your medical condition at the start of the policy.
The insurance company can’t cancel the cover and must pay out if you cannot work under the terms and conditions of the policy even if your lifestyle or diet contributes to the reason you cannot work.
Income protection also lasts the whole term of your mortgage or your working life, so you know your home is not at risk if you cannot work for more than a year.
If you are looking at payment protection insurance, then do not just compare the prices of accident, sickness and unemployment cover – look at the longer-term benefits of income protection as well.