What is it?

Income protection insurance (IPI) or ASU (Accident, Sickness and Unemployment) cover can help you and your family continue to maintain the life you are accustomed to if you are unable to work for whatever reason, but particularly as a result of illness, an accident or unemployment.

The insurance covers a wide range of different causes which could stop you from working. They include conditions like mental illness, a chronic condition like multiple sclerosis, cancer and heart disease, among others.

In the UK more than two million people aged between 20 and 64 are off work for over six months. Should this happen to you income protection insurance can provide peace of mind and offer security at times when money will be tight. It is more debatable whether income protection is worth the cost if it is used as a backing to a loan, like a mortgage.

Having said that, know your benefits package at work, if you are made redundant you may receive enough money to tide you over before finding more work, if you are unwell your sick pay could reduce the cost of the policy. Don’t take out this sort of insurance if you have sufficient savings and/or other insurance which will enable you to manage. Do be aware that most insurers will only give cover on between 50-75% of gross wages.

Consider the following:

• How much money do you need per month if you’re not working?

• For how long do you wish to be paid?

• How long do you have to wait before the policy pays out? What will the premium be?

• Read the small print – there are lots of exclusions. For example, you have to have been employed six months consecutively to qualify, and there is no cover if an accident happened while the policyholder was drunk.  Also, of course, no pre-existing complaint is covered and some insurers won’t take on people with certain pre-existing conditions.

• Buy only what you need – The more cover you want the more expensive the premium will be. Insurers and brokers will be happy to talk up a lot of cover, but say no – unless you feel it’s absolutely necessary to get the complete package.

• Do you need it?
  Like any insurance, IPI is nice to have, but remember it is one more bill to pay each month. It could cost around £70 a month to receive £1,200 benefit a month with cover for a year for someone in their 40s in the event of accident, sickness or unemployment.

There are countless people who pay IPI premiums each month and never claim, then there are thousands who do need to claim who swear it’s worth the premiums to have the cover. It’s a toss of a coin to know which will be your experience.

The ideal way is to insure yourself. Work out how much you need to keep going each month and put aside three to six times that amount into a high interest savings account. That is your own, personal income protection scheme. You could put aside 12 times that amount to cover yourself for a whole year if you like. If you have that kind of spare money, it’s really the best way of insuring yourself and your family, giving you time enough to sort something out if things go pear-shaped.

How to get the best deal

As ever, it’s important to compare IPI rates so have a look at a comparison site.