Protect your income (when all about are losing theirs)

Today’s unemployment figures make for uncomfortable reading. The number out of work recently fell slightly to 2.45 million1 to the end of August, but many economists fear that this figure will rise again once government cuts begin to bite. Fortunately, insurance is available which can protect against redundancy while also replacing your income should an accident or illness prevent you from working.

The first thing to do is to check what your employer provides in the way of sickness pay or a redundancy package. If this help is limited (or if you are self-employed) you should try to build up an easily accessible sum which would cover your expenses for at least three months. Income protection over a longer period is provided by Accident, Sickness and Unemployment Cover, Income Protection Insurance or Critical Illness Cover(combined with redundancy cover) for all round protection. Your financial adviser can help you to decide the most appropriate cover for your circumstances.

Accident, Sickness and Unemployment cover (ASU)

  • Pays a monthly benefit in the event of sickness, accident or unemployment for a set period, usually 1 or 2 years, or until you return to work
  • Often an inexpensive alternative to Income Protection Insurance or Critical Illness protection
  • Will not usually cover you if you had reason to believe that you might become unemployed or lose your job during the first 90 days of the policy
  • Pre-existing conditions, muscular-skeletal problems or stress-related illnesses are not usually covered

Income Protection Insurance

  • Normally pays a maximum of 65% of your gross monthly income
  • Higher premiums than ASU reflect more comprehensive coverage
  • Covers a wider range of health problems than ASU and often also offers practical assistance to help get you back to work
  • Continues to pay monthly benefits until retirement age if health problems permanently prevent you from working

Critical Illness Cover

  • Pays out a lump sum in the event of severe illness or injury
  • The amount of cover often reflects a mortgage commitment, but can be used for any purpose
  • A number of ‘core’ conditions are normally covered by all insurers, but most offer additional protection for other illnesses
  • Value for money can be enhanced if combined with a life insurance policy

1Office for National Statistics