In what way does it differ from Accident, Sickness and Unemployment cover?
Income Protection policies, and Accident, Sickness and Unemployment policies (ASU) are both designed to replace a person's income should they become incapacitated and therefore be unable to work. However, there are some major differences between the two types of cover.
Income Protection Insurance policies are designed to provide the policyholder with a replacement income in the event of a long-term sickness or disability. Payments are usually made when the policyholder either cannot undertake their own, or any job due to illness or injury.
Accident Sickness and Unemployment (ASU) waived policies a type of Payment Protection Insurance* is also designed to provide an income in the event of illness or injury, but it also provides cover in the event of becoming unemployed. The cover can pay out for up to two years, rather than until retirement (as is the case with Income Protection Insurance). Some ASU policies will also allow you to choose whether you want to receive benefits for accident and sickness only, unemployment only, or all three.
Income Protection will pay out a guaranteed level of income every month for as long as your incapacity continues; if necessary until your 65th birthday or when you retire. Normally, there is a maximum benefit payable from such a policy; this is usually 65% (Some ASU plans are also calculated on this basis) of a person's annual income, less any benefits that they are entitled to from their employer and the state, it is important to remember this benefit is paid.
ASU benefits are usually payable for a maximum of 12 months. However, some policies will pay the benefit for up to two years, it all depends on the insurer. With ASU you are able to choose the amount of benefit you would like to receive (within certain limits). The premium will be calculated as a percentage of the amount of monthly benefit you would like to receive and hence the higher the amount of cover, the higher the associated premium costs.
So long as each claim is legitimate an Income Protection policy can pay out a number of times and the insurer cannot cancel the policy as long as premiums are maintained. Depending on the premium that you're prepared to pay, the monthly benefit payments can be linked to the Retail Prices Index (RPI). This means that they automatically keep pace with the official cost of living, a process known as 'inflation proofing'. ASU policies will only allow a single claim, at which point the policy will be cancelled, so you would need to re-apply to set up a new policy. You do not have the option of 'inflation proofing' such a policy. The benefit, once chosen, is fixed and if you wish to increase it then you must apply again for a new policy with a new benefit.