Make income protection a priority as credit crunch bites

When the good times roll, it is easy to overlook how you would manage financially if you lost your job.

But with rising household and fuel bills, the reality for many families across Britain today is that they only have enough savings to see them through less than a month.

This is an alarming statistic, but one that can act as a timely reminder to check that you have adequate insurance in place. Only then, will you receive an income if you find yourself out of work.

Admittedly, with the credit crunch in full swing, buying insurance may not currently be at the top of your list of financial priorities right now. But you’ll be glad you took action in the unfortunate event that you need to make a claim.

There are several options available. One type of policy is accident, sickness and unemployment (ASU) insurance, also called mortgage payment protection insurance (MPPI).

There are other types of policy, such as Critical Illness which pays off your mortgage if you are sick, and Income Protection where you receive a monthly income while you are sick, which will continue until you reach retirement.

However, ASU is the most suitable cover if you are concerned about being made redundant.

In contrast to other types of insurance, most ASU plans pay out for a maximum of two years and many policies only pay out for 12 months.

It is often sold as part of a mortgage protection package by banks and buildings, although it is wise to shop around for the best deal. Major providers include Halifax, Millennium and Payment Shield.

As Philip Pearson of Southampton-based independent financial advisers P&P Invest, warns: "It is very important to not purely accept the recommendation of your mortgage provider and tick the box for payment protection when applying for the loan but to research the market yourself."

Begin by considering the terms of individual policies before choosing a plan which is most appropriate for your personal needs.

Far too often people buy insurance without reading the detail and think they are covered, only to find that their insurer will not pay out because they have either neglected to provide specific information on application or do not have sufficient cover in place.

So how much should you be paying for ASU insurance? Premiums are not typically specific to your occupation or underwritten with reference to your past or current state of health. Instead, you tend to pay a flat premium and receive a set amount of cover.

It is cheaper if you want either just the accident and sickness element or just the redundancy component. Individually, these premiums would each start at around £3 a month per £100 of monthly cover required.

The leading plans in the market provide valuable additions to basic protection with such features as free legal expenses cover, free health counseling and advice in how to get back into the workplace.

Rates vary significantly between different providers with large savings available should a deferred period be selected before payment is made in the event of a claim.

By Myra Butterworth

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