Accident sickness and unemployment cover explained
With rising unemployment and the continued economic downturn it’s unsurprising that mortgage brokers and insurers alike have noted big increases in the number of enquiries about mortgage payment protection insurance or ASU as it is otherwise known so I thought now would be a good time to discuss how the cover works and what type of cover is available.
Few homeowners are aware that income support for mortgage interest is now only available 39 weeks after a redundancy or injury etc leave you out of work, and certainly very few would continue to receive pay at full level for this length of time or even have sufficient savings to cover their mortgage and lifestyle for this duration, and this is where the need for ASU cover comes in.
These products are designed to provide cover where you are unable to work due to an accident, sickness or in certain circumstances unemployment and to help support the payment of important bills such as a mortgage, insurance, utilities & food etc. They typically will provide a benefit for between 12 and 24 months.
ASU is usually arranged with a deferment period option which may be 4, 8, 12 or 24 weeks for example which is the amount of time from being unable to work prior to being able to make a claim on the policy, in general the longer the deferment period the cheaper the cover. You can also decide whether it will then pay back to day one (i.e from the date of being out of work) or from the end of the deferment period which again will usually reduce the premium.
It may give you the option whether or not to include unemployment and this will certainly only cover you for involuntary unemployment (i.e if you are dismissed or resign there will be no cover). For the self employed care will need to be taken as many policies will not cover this type of employment or supplementary income from freelance work. Another important point is they will generally require you to have been in permanent employment for a minimum of a year, and for the policy to have run for at least 3-6 months prior to a claim for redundancy. And they may exclude redundancy where you could reasonably have expected it prior to arranging the cover so if your firm has announced job cuts in the future you need to take care that the cover will not be invalid.
Cover can normally be arranged to cover the cost of your mortgage and insurances, with the option to add extra cover up to a maximum percentage of your income or percentage above your mortgage so that you can’t be better off receiving the benefit than if back at work, and there may be the option to waive the premiums from the point of being out of work (i.e you won’t be able to claim until the deferment period is complete but you can stop paying the monthly premium when initially out of work) again though this will usually make the cover more expensive.
As usual if you are interested in this type of protection it makes sense to speak to an independent mortgage or financial advisor prior to making a purchase and make sure it suits your needs fully as many wont charge a fee for arranging the cover.