Income Protection vs ASU: A UK Guide to Choosing the Right Cover

More and more people in the UK are recognising the importance of protecting their income. However, the market has two main types of products that look similar but are fundamentally different in their scope and purpose: Income Protection (IP) and Accident, Sickness & Unemployment (ASU) cover.

Today, we’re breaking down the critical differences to help you decide which is right for you.

The First Key Difference: How You Buy Them

Many people know that you can buy an ASU policy directly from a bank or online. However, a comprehensive Income Protection policy can only be arranged through an FCA-regulated professional adviser. This is directly related to the long-term and robust nature of the product.

Income Protection vs ASU: The Four Core Differences

1. Reason for Claim: Health vs. Health & Redundancy

• ASU (Accident, Sickness & Unemployment) is very direct. It covers you for those three specific events. For many, the inclusion of unemployment cover is its main attraction.

• Income Protection (IP) is highly focused. It only covers your inability to work due to an accident or illness. It does not cover redundancy.

2. Payout Period: Long-Term Security vs. a Short-Term Buffer

This is the single biggest difference between the two.

• ASU is a short-term product. The payout period is typically limited to just 12 or, at most, 24 months. It’s designed to give you a temporary financial cushion while you recover or find a new job.

• IP is a long-term safety net. A good IP policy can pay out until you recover, or even right up until your chosen retirement age. For someone who suffers a serious, life-altering illness or injury, this long-term support is the real financial lifeline.

3. Definition of Incapacity: "Own Occupation" vs. "Any Occupation"

This is a crucial detail.

• A quality IP policy will use an "Own Occupation" definition. This means you can claim if you are medically unable to perform your specific professional job, even if you could still do a less demanding role.

• ASU and more basic IP policies may use a broader definition, like "Any Occupation." This means you can only claim if you are unable to do any work at all, making the threshold for a successful claim much higher.

Who Are They Best For?

• ASU is suitable for employed individuals who want to cover the short-term risk of redundancy and understand that the health cover is also time-limited.

• IP is for anyone seeking a robust, long-term financial safety net for their health. It is an indispensable cornerstone for the self-employed, who cannot rely on state unemployment benefits.

An Important Choice: Level vs. Index-Linked Cover

Like life insurance, the monthly payout from an income protection policy can be structured in two ways:

• Level: The monthly payout and your premium remain fixed. This is good for clear, predictable budgeting.

• Index-Linked: The payout increases each year with inflation to protect its purchasing power. This is vital for a long-term policy. A £1,500 monthly benefit today might have significantly less value in 30 years' time.

How Should a Smart Consumer Choose?

So in this article we have covered Income protection vs ASU cover. Many are initially drawn to ASU by its unemployment cover and slightly cheaper premiums. However, the biggest financial catastrophe for a family is rarely short-term redundancy, but a long-term illness or accident with an indefinite recovery period.

Income Protection (IP) should be your core, foundational cover because it provides the most important and longest-lasting protection for your health.

ASU can be considered as a short-term supplement, or as a temporary solution if your budget is extremely limited.

Your financial safety net deserves careful consideration. Choosing the wrong plan can have consequences far greater than you imagine.

Want to know which plan is the best fit for your occupation and budget? Need help calculating how much cover you truly need?

Contact us today for a free, no-obligation assessment of your income protection needs.