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What does Short Term Income Protection Insurance cover?

Short term Income protection insurance covers three types of risks:-

  • Unemployment

  • Accident and sickness

  • Both Accident / Sickness and Unemployment (ASU)

What is Unemployment Cover?

Unemployment or redundancy insurance provides income protection up to a certain percentage of your income (e.g. 70%), usually for up to 12 months, in the event of an involuntarily redundancy. You can buy either a standalone unemployment cover or as an add-on to income protection insurance covering accident and sickness or as an add-on to payment protection insurance (which we will discuss later). The premium will be lower if you buy a standalone cover, but an income protection policy covering accident, sickness and unemployment will provide more comprehensive protection. You will have to decide according to your own needs and personal situation.

You should buy unemployment insurance well before you are exposed to higher than average redundancy risks. If you know that you may become redundant at the time of buying an unemployment policy, your policy claim may be rejected. The insurance company will always investigate the circumstances related to the unemployment insurance claim and if, after a thorough investigation, they feel that you insured yourself after gaining sufficient information with regards to your employment risk, then they will repudiate your claim request. You should note that, if you are served notice by your employer within the initial exclusion period, then the insurance company will reject your claim.

What is Accident and Sickness Cover?

Accident and Sickness insurance will provide you income protection if you are too sick to work or if you are injured and unable to work. You will receive a certain percentage of your income from your policy for the policy term, usually for up to 12 months. As discussed earlier, you can add unemployment cover to your accident and sickness insurance.

What is Initial Exclusion Period?

If your income protection insurance policy includes an unemployment cover then you will not be eligible to make an unemployment claim during the exclusion period. The length of the exclusion period differs from policy to policy. Let us assume that the exclusion period of an unemployment insurance cover of your policy is 120 days. In this example, if you become unemployed within 120 days of buying your policy, you will not be eligible to make a claim. You should also be aware that if your employer serves you notice of termination or redundancy during the exclusion period (within 120 days of buying your policy), you will not be able make a claim, even if the actual redundancy may start after the initial exclusion period.

What is Waiting Period?

Waiting period, also known as deferment period, is the time you have to wait to start receiving claims from your accident, sickness or unemployment insurance, after you have become ill, or had an accident or become unemployed. Waiting period varies from policy to policy and are designed to prevent fraudulent claims. Some policies may pay the claim in full after the waiting period by back-dating the claim to day 1 of the event (accident, sickness or unemployment). This is known as Back to Day 1 Cover. Let us assume you have been unable to work from January 1 due to sickness. The waiting period of your policy is 30 days. You will not be able to make a claim until January 31. If you have a Back to Day 1 Cover, the policy will pay you the amount of the entire period (starting from January 1) that you were off work.

You should make a careful evaluation of your financial situation (assets and liabilities) when buying an ASU policy. If you have sufficient liquid funds that you can use to meet your regular expenses for a few weeks or months in the event of loss of income due to accident, sickness or redundancy, you can opt for a longer waiting period. The longer the waiting period, the lower the premium (cost of insurance).

What is Excess Period?

Excess period is the time which the policyholder is prepared to wait before they make an unemployment claim on the policy. Policies may have excess periods of 30 days, 60 days, 90 days etc. You can make a claim only after the excess period. Please note the difference between the Back to Day 1 cover and policies with excess period. If you opt for an excess period, you are forgoing a portion of the claim. Why will an insurance buyer opt for excess period? Excess periods will get policyholders a discount on the premium; the longer the excess period, the larger the discount. If your employer continues to pay you for some months even when you are off work, you can buy a policy with excess period. You can match the excess period with the number of months you continue to receive payments from your employer. Once the payments from your employer stops, you will start to receive payments from your policy. Waiting period and excess period can be confusing terms. You should understand the difference between the two very clearly.

What are Pre-existing conditions?

Your accident and sickness insurance policy may not cover certain illnesses that you had before you take out the policy. These illnesses are known as pre-existing medical conditions. You should provide details of your medical history to your insurer. If you fail to disclose full medical information to your insurer, your insurer may subsequently reject your claims.

Finally, you should be aware which pre-existing medical conditions are excluded in your policy and should disclose these medical conditions to your insurer at the time of buying the policy. You should also note that, some occupational medical conditions may be excluded from your ASU policy.

It is important to reiterate, you should read the policy terms very carefully before buying an ASU policy.

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