"In terms of peace of mind, IP will usually win the day, but if you are a graduate, looking at experimenting with your career path, the more flexible and situational cover offered by ASU could be worth discussing."
- Alan Richardson, Protection Expert at LifeSearch
Often regarded as short-term Income Protection (IP), Accident, Sickness and Unemployment (ASU) pays out a tax-free proportion of lost salary every month for up to 24 months if a policyholder loses their job through no fault of their own, becomes too unwell to work or experiences debilitating injury and is unable to work.
ASU is usually sold off-the-shelf - alongside mortgages, loans, and credit cards - similar to Payment Protection Insurance (PPI). This means pay-out decisions are made at the point of claim rather than defined when taking out the policy.
This practice dates back to the 1990s when banks started selling PPI aggressively, often failing to make sure consumers wanted/needed it, or were even aware they were buying it, putting profits before consumer needs. The scale of this scandal had a far-reaching impact on the insurance industry and the reputation of ASU, damaging trust and discouraging providers and advisers from promoting the product to future clients. Consequently, the market contracted and declined significantly.
In today’s climate, post-pandemic and amid the Cost-of-Living Crisis, people are beginning to experience a renewed sense of financial vulnerability. According to research conducted by LV= last year, 45% of 25-44 year olds without a protection policy were not confident they could financially cope if they fell ill.
Furthermore, 50% said that they rely on both their own and their partner’s income to cover monthly outgoings, and just over a quarter (28%) of employees in this age group said they would struggle to pay household bills if they were unable to work for two months or more.
READ MORE: Almost half of 25-44 year olds without protection unable to cope financially if ill
Likewise, last year’s FCA Financial Lives survey, which was carried out between February and June, found that 7.8mn people currently find domestic bills and credit commitments a heavy burden. This reflects a 5% increase since 2020.
READ MORE: FCA issues warning amidst 2.2m decrease in UK financial resilience
Consequently, the protection market has begun to be viewed in a different light, especially among younger people who are more likely to suffer from short-term illness or redundancy, rather than death or serious critical illness.
Given that IP rarely includes unemployment cover, could these concerns prompt insurers to review the importance of ASU for recent university graduates?
Ian Sawyer, Commercial Director at Assured Futures, which relaunched ASU cover back in 2021, believes it could be a "great stepping stone to give short-term protection for all eventualities and often at an affordable price."
READ MORE: Assured Futures relaunches unemployment cover
Imagine being new to the employment world, about to start your first job, but not yet in a position to have any form of safety net in place for unforeseen circumstances. You might have access to savings for unplanned time out of work, but this isn’t always possible, especially given the current economic climate.
"Even if you do have a pot of cash put aside, wouldn’t you prefer to protect this for just a small premium? Accident, Sickness and Unemployment cover is a great stepping stone to give short-term protection for all eventualities and often at an affordable price," Ian explained.
Unlike medically underwritten policies such as long-term IP, which can provide cover up to retirement, ASU offers "immediate cover without any lengthy medical and lifestyle questions." ASU also covers "most short-term illnesses, such as operations, broken bones, and even provides a security blanket so that for serious illnesses, you have time to plan for any prolonged time out of work."
Another big difference between ASU and IP is that most ASU policies will pay alongside work sick pay, which could have a massive impact on people who earn on commission or often work overtime, as even if they receive sick pay, this would be at their basic rate. "It’s also ideal for somebody being paid a staggered sick pay and needs more consistency to pay regular bills and outgoings," Ian added.
Although Ian agrees long-term IP will "always be in the best interests of the client" if they have no medical history preventing acceptance at normal terms, "each client is different in both needs and attitudes to risk which is why advice should be sought and given."
"Whilst ASU cover isn’t compulsory, it is essential that all working ages consider its importance," Ian concluded.
Alan Richardson, Protection Expert at LifeSearch, also felt ASU could be worth discussing if the client is looking to experiment with their career path and needs more "flexible and situational cover." However, noting the average graduate salary (£24,291), rising to £40,654 in London, is circa 10% lower than the average full-time worker salary, he believes employers are currently "competing" for graduates to join their workforce rather than first-time employment being harder to achieve.
"The attraction of skilled talent is obvious, but a study from the Institute of Employers outlines how annual turnover of graduates in the UK is also on the rise, suggesting that graduates are more likely to change employer or career within the first three years," Alan explained. He felt this "willingness to move" is fuelled by the knowledge that "as skilled individuals, they hold power previous generations probably haven’t had in their early career."
"It is then no surprise that buying ‘redundancy cover’ is low on the priorities of graduates new to the employment market. Waiting periods, coupled with deferment period can often accumulate to such a length, that most such educated or skilled individuals can find new employment before any payment under a policy would pay out," Alan added.
Although the risk of redundancy fluctuates between sectors – for example, a graduate in the health service at the moment may feel more secure in their long-term employment than someone in a technology company – covering loss of health is "probably a higher priority at this stage."
Equally, it is important to note that ASU contracts are annually renewable. This allows the insurer to manage their exposure more proactively, deciding premiums, and in some circumstances, terms annually. By comparison, IP is a long-term contract, which means regardless of the number of claims made, forecasted, expenses, or changes in taxation laws, the insurer won’t be able to refuse the client cover or restrict cover from one year to the next.
Consequently, although both approaches have benefits, with ASU applications being "simpler and rarely affected by medical disclosures," Alan felt IP will usually win the day, providing "clarity as to what is covered, or more importantly, what isn’t covered because of the underwriting at application stage."
