Accident sickness and unemployment cover explained
Author: Andy Bedford » Publish Date: 20 May 2009
With rising unemployment and the continued economic downturn, it is unsurprising that mortgage brokers and insurers alike have noted increases in enquiries about mortgage payment protection insurance or accident sickness and unemployment insurance, as it is otherwise known.
So I thought now would be a good time to discuss how the cover works and what types are available.
Few homeowners know that income support for mortgage interest is only available 39 weeks after redundancy or incapacity leaves you out of work.
And very few people would continue to receive pay at full salary for this length of time or even have sufficient savings to cover their mortgage and lifestyle for this duration; this is where the need for ASU cover applies.
ASU covers being unable to work due to an accident, sickness or unemployment (if applicable). And to help pay bills like your mortgage, insurance, utilities and food. They typically provide a benefit for between 12 and 24 months.
It has a deferment period usually of 4, 8, 12 or 24 weeks. It is the amount of time from being unable to work before 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.
You may have the option to include unemployment; this will only cover you for involuntary redundancy. If you are dismissed or resign, there will be no cover.
For the self-employed, care is required as many policies will not cover this type of employment, or supplementary income from freelance work.
Another point is they 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 before 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 ensure that the policy will be valid.
Cover can usually be arranged, for the cost of your mortgage and insurance, with the option to add an extra cover up to a maximum percentage of your income; or a percentage above your mortgage costs so that you cannot be better off receiving the benefit than if back at work.
There may be the option to “waive the premiums”, from the point of being out of work; you won’t be able to claim until the deferment period is complete, but you can stop paying the monthly premium as soon as you are 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 before making a purchase.