Short-term income protection and accident, sickness and unemployment cover

Accident, sickness and unemployment insurance, often shortened to ASU, is cover that pays you a regular amount for a limited period if you cannot work because of illness, injury or redundancy. The Financial Conduct Authority defines the category, short-term income protection, as a contract of insurance which provides a pre-agreed amount paid directly to the policyholder or their nominee in the event of involuntary unemployment or incapacity as a result of accident or sickness¹. Shelter Cymru describes it plainly: it is cover that would keep up your repayments for a time if you are unable to work because of illness, accident or being made redundant².

The key word is "short-term". Most ASU policies will not pay out until a few months after you are unable to work, and then for no longer than a year or two². That makes these policies very different from long-term income protection, which is also known as permanent health insurance and is designed to pay a percentage of your income for as long as you cannot work, potentially for many years³. ASU cover is also closely related to mortgage payment protection insurance, or MPPI, which is an ASU policy aimed specifically at covering a mortgage payment. Policies marketed as redundancy insurance are actually a form of ASU insurance⁴.

What short-term income protection and ASU cover pay out

An ASU policy pays a pre-agreed amount of money, usually monthly, directly to you rather than to a lender or employer¹. What you do with the money is up to you, though many people buy this cover with a specific commitment in mind, most often a mortgage or rent. When the cover is arranged to match a mortgage payment it is commonly sold as mortgage payment protection insurance, and the ombudsman's guidance on payment protection insurance treats these products together, since MPPI is a form of ASU rather than a separate type of insurance⁷.

The amount a policy pays is not designed to replace everything you lose. The Financial Ombudsman Service's guidance on income protection is blunt about this: policies do not replace all your pre-disability income, and they usually provide a proportion of your income, minus state benefits and any income from similar policies⁸. So if you are receiving Statutory Sick Pay, Employment and Support Allowance or another state benefit because of the same illness, the insurer may deduct it when working out your monthly payment. The ombudsman describes the product as one that protects your income if you fall ill and cannot work, paying a percentage of your income each month⁹.

Most ASU policies combine three possible triggers in one contract: accident, sickness and unemployment. Some people buy only part of that package, for example unemployment cover alone, which is what "redundancy insurance" usually is⁴. Others buy accident and sickness cover without the unemployment element. Because the payout is a fixed pre-agreed amount rather than a salary-linked calculation, it is worth checking what the figure would actually cover against your essential bills.

Who can get cover: age, residency and work status

Eligibility is one of the weakest points of these policies, and it is set by each insurer rather than by law. Shelter Cymru notes that many ASU policies will not cover self-employed, part-time or contract workers². The FCA's rules on policy summaries require firms to spell out restrictions on eligibility to claim, such as age, residence or employment status, in the documents you get before and after you buy¹⁰. Those restrictions are worth reading before you buy rather than after you try to claim.

Age limits are common. The ombudsman's guidance on payment protection policies notes that many policies stop providing accident and sickness cover after age 65, and from that point on many only provide cover for hospitalisation, accidental death and permanent total disability, while the cost of cover usually stays the same⁷. So a policyholder can carry on paying the same premium for a policy that no longer covers the main risk they bought it for.

Work status matters in two directions. If you are employed, the unemployment part of the cover usually requires that any job loss be involuntary: resignation or dismissal for misconduct will not trigger a claim. If you are self-employed, the sickness part may be the only part available to you at all, and even that is not guaranteed. State benefits have their own, separate eligibility rules: Employment and Support Allowance is for people under State Pension age who have an illness or disability that affects how much they can work¹¹, and official statistics for Northern Ireland record that with the introduction of Universal Credit there are no new claimants to income-based Jobseeker's Allowance, though claims can still be made to New Style Jobseeker's Allowance depending on National Insurance contributions¹². These state rules sit alongside, not instead of, your policy's own conditions.

Residence conditions also appear in state support rules, and they can be relaxed for particular groups. For example, the residence and presence conditions for Pension Age Disability Payment in Scotland do not apply where an individual has been granted refugee status or humanitarian protection under the immigration rules, or leave as the dependant of such a person¹³. Similar principles apply to Adult Disability Payment, where someone may be entitled if they have lived with a disability or long-term condition for at least 3 months that is expected to continue for at least 6 months, unless they are terminally ill¹⁴. Insurance policies are separate contracts with their own residency terms, but these examples show how varied the qualifying rules are across the support you might rely on.

How much a policy pays each week or month

There is no standard payout for ASU cover. The pre-agreed amount is set when you buy the policy, and the ombudsman's guidance is that it will usually be a proportion of your income, reduced by state benefits and income from similar policies⁸. Insurers consider a variety of factors when calculating the premium, which can vary depending on the insurer, the individual circumstances of the policyholder and the particular risks the insurer is being asked to cover¹⁵.

Because state benefits are deducted from what a policy pays, it helps to know what those benefits are worth. Some state payments are set as weekly amounts. Industrial Injuries Disablement Benefit, paid for disablement caused by a work accident or prescribed disease, is set at £233.90 a week for 100 per cent disablement from 8 April 2026, with lower weekly rates for lower degrees of disablement, such as £210.51 at 90 per cent and £187.12 at 80 per cent¹⁶. These figures appear in the official benefit and pension rates for 2026 to 2027¹⁷.

The Scottish figures show how rates can differ between nations and change over time. Social Security Scotland's guidance gives the higher rate of Pension Age Disability Payment as £110.40 a week if you need help or supervision both during the day and night, or if you are terminally ill¹⁸, while the March 2026 factsheet for the same payment gives a higher rate of £114.60 a week¹⁹. The two documents disagree, so check the current rate with Social Security Scotland rather than relying on either figure.

The practical point for an ASU policyholder is that the pre-agreed benefit you choose should be tested against your real outgoings, and against what the state would pay if you were ill or injured. A policy that pays less than your mortgage, or that is largely swallowed up by deductions for state benefits, may not do the job you bought it for.

Waiting periods and exclusions that limit a claim

The FCA's rules on what a policy summary must show give a checklist of the things that most commonly limit a claim, and every ASU buyer should look for them: deferred payment periods; exclusion of certain conditions, diseases or pre-existing medical conditions; moratorium periods; limits on the amounts of cover; limits on the period for which benefits will be paid; restrictions on eligibility to claim such as age, residence or employment status; and excesses¹⁰.

The deferred period, or waiting period, is the time between you stopping work and the policy starting to pay. Shelter Cymru notes that most ASU policies will not pay out until a few months after you are unable to work². Citizens Advice gives a wider range for income protection generally: you usually have to wait a minimum of four weeks, but payments can start up to two years after you stop work³. A longer waiting period means a cheaper premium, but it also means you must be able to survive on sick pay, savings or a partner's income in the meantime.

Exclusions are the other main trap. Illness insurance policies do not always cover every type of illness and may exclude pre-existing medical conditions, and some policies say you cannot claim if you are able to do other kinds of work than your own³. That last point matters: a policy with a restrictive definition may refuse a claim because you could theoretically do a different job, even if you cannot do the job you actually have. The ombudsman's guidance on payment protection gives a concrete example of how limits bite: a policy might only pay out accident and sickness benefit for a maximum of 12 months, and the consumer would have to return to work for a period of six months before they could make another accident or sickness claim⁷.

Some neighbouring products show how exclusions work in practice. Accidental death insurance does not pay out if you die from an illness or disease, and also excludes suicide and self-inflicted injuries, reckless or dangerous behaviour including being under the influence of drink or drugs, and some dangerous sports and activities²⁰. ASU policies carry their own versions of the same idea: causes that the insurer regards as self-inflicted, voluntary or within your control are typically outside the cover.

How long payments last: a year or two, not years

The defining limit of ASU cover is duration. Shelter Cymru's summary is that most policies will not pay out until a few months after you are unable to work, and then for no longer than a year or two². Which? gives the same picture for redundancy insurance: it will pay out a proportion of your salary for up to a year, or perhaps two years⁴. The ombudsman's example of a 12-month maximum per claim, with a six-month return-to-work requirement before a new claim, shows how tightly these limits can be drawn⁷.

This is the sharpest contrast with long-term income protection, which is built to pay for as long as you cannot work rather than for a fixed spell. The comparison matters most for someone with a serious or long-lasting condition: an ASU policy that stops after a year or two leaves that person relying on state support, savings or a return to work, while a long-term policy may still be paying. The dedicated comparison of short-term and long-term income protection sets the two side by side.

Statutory Sick Pay and the first week off work

In the first weeks of an illness, your employer, not your insurer, is usually the source of any sick pay. Statutory Sick Pay is payable from the first full day of sickness and can be paid up to a maximum of 28 weeks²¹. For the first seven days of sickness, you will usually be asked by your employer to fill in a self-certificate, and if you are ill for more than a week you will need medical evidence from a doctor⁵. Employers meet the full costs of Statutory Sick Pay²², and if your employer goes bust, HMRC will pay it instead⁵.

Statutory Sick Pay is not available to everyone. It is only payable to those employed by a company: people who work for themselves are not able to claim it⁵. For the self-employed, an ASU or income protection policy is often the only private replacement for employer sick pay, which is a reason the exclusions of self-employed people from many ASU policies² are worth checking carefully before buying.

When Statutory Sick Pay runs out or is not payable, the main state benefit for people under State Pension age with an illness or disability that affects how much they can work is Employment and Support Allowance¹¹. To apply online you need your National Insurance number, your bank or building society account number and sort code, your GP's name, telephone number and address, a fit note if you have not worked for more than 7 days in a row, details of income from a pension or permitted work, and the date your Statutory Sick Pay ends¹¹. The guide to Statutory Sick Pay, ESA and state support covers these routes in more detail.

Premiums, fees and whether they can change

Shelter Cymru's assessment of ASU policies is that they are quite expensive². The premium depends on the insurer, your individual circumstances and the particular risks being covered¹⁵, so the same amount of cover can cost very different amounts from different firms. Premiums are usually paid monthly or annually, as with other protection products²⁰.

The more important question for a policy you may hold for years is whether the price can change. Which? notes that, as a general insurance product, the premium and exclusions of a redundancy insurance policy can be changed every year or with 30 days' notice⁴. This is a significant difference from long-term income protection, where premiums are more often guaranteed for the term of the contract. A policy that is cheap now may not stay cheap, and the exclusions may not stay the same either.

Some policies go further. Which? reports that some redundancy policies even have cancellation clauses, so the insurer can cancel the policy if they think the risk of redundancy is rising⁴. That means the unemployment part of the cover is most likely to be withdrawn exactly when the risk it covers is increasing. Any request you make to change the policy can also move the price: Legal & General, describing changes to its critical illness cover, says changes could affect the premiums you pay and that it would have to assess any change request based on your circumstances at the time²³.

Tax on sickness benefit payments

Whether payouts are taxed depends on what kind of payment they are and who pays them. Statutory Sick Pay is treated as earned income, so you have to pay both income tax and Class 1 National Insurance contributions on it⁵. The legislation behind this is the Income Tax (Earnings and Pensions) Act 2003, which imposes charges to income tax on employment income, pension income and social security income²⁴, and Statutory Sick Pay is listed in the Act's table of taxable UK benefits²⁵.

The position for private insurance payouts is different in principle. Payments under a policy of sickness or injury insurance are generally treated according to the rules on payments made under the policy, and the ombudsman's guidance on income protection notes that policies usually provide a proportion of your income, minus state benefits and any income from similar policies⁸. The guide to tax on protection payouts covers the position for each type of policy.

Some state injury-related schemes reduce what they pay by reference to other income. The NHS Injury Benefit Scheme takes other sources of income into account when calculating the level of benefit, including NHS pension payments or other NHS-related income, certain personal pensions and DWP benefits paid in respect of the injury or illness²⁶. The same offsetting logic, state benefits and similar policies reducing a private payout, is what the ombudsman describes in income protection claims⁸, so a policyholder should expect their total income while ill to be a patchwork rather than a single payment.

Changing your cover, your job or cancelling

If you take out income protection insurance, you usually have 30 days to cancel the policy and get a full refund³. After that, what you get back depends on the type of policy. The ombudsman's guidance on payment protection insurance notes that if a single-premium policy is cancelled early, the consumer usually receives a refund, but the refund is usually much less than a pro-rata amount, especially if the policy was cancelled early and after the initial cooling-off period⁷.

You are generally free to move. The ombudsman's guidance confirms that a policyholder can cancel their policy and set up a new one with a different insurer whenever they want, even if a claim is ongoing, though the claim will affect their no-claims bonus⁵. With protection insurance the practical caution is different: a new policy means new health questions, and a condition that has appeared since the first policy was taken out may be excluded from the new one. The ombudsman also notes that an insurer can change or end an insurance contract if your circumstances change during the course of the policy in a way significantly alters the insured risk²⁷, so a change of job, a move abroad or a health event can affect existing cover, not just new cover.

Insurers vary in what changes they allow on an existing policy. Legal & General, for its critical illness cover, says you can apply to extend or reduce the period of cover, increase or decrease the amount of cover, remove a life from a joint policy, and change the way you pay premiums from monthly to annually or vice versa, and that you may be eligible to increase your cover within six months of specified life events occurring²³. Any such change is assessed on your circumstances at the time and can affect the premium²³. The guide to changing your cover works through the common options.

Where a dispute arises about what a cancelled policy should return, the ombudsman looks at fairness. In one published case study, a customer whose cruise was cancelled had been offered a partial refund for the basic part of his travel insurance policy, from the date the cruise had been cancelled²⁸. The same principle, a refund that reflects the remaining cover rather than the full premium, is what the ombudsman applies across insurance cancellations.

How to apply and how to make a claim

Applying for ASU cover follows the same route as other protection insurance: you answer questions about your health, occupation, income and lifestyle, and the insurer either accepts you on standard terms, applies exclusions, or declines. The guide to applying and underwriting explains the process, and the guide to pre-existing conditions covers the point that matters most with these policies, since pre-existing medical conditions are among the most common exclusions¹⁰.

When it comes to claiming, the sequence is broadly the same whatever the insurer:

1. Tell your insurer as soon as you stop work, or know you will. Policies set time limits for notification.
2. Gather evidence. For sickness claims this means medical evidence: a self-certificate for the first seven days and a doctor's note after that, as with Statutory Sick Pay⁵. For unemployment claims it means proof of redundancy and, usually, that you are registered as seeking work.
3. Serve the waiting period. Most policies pay nothing for the first few months², so keep paying premiums in the meantime.
4. Receive the pre-agreed amount, usually monthly, for the limited period the policy sets, often no longer than a year or two².
5. Report any change. If you return to work, or your condition changes, tell the insurer, since payments are for incapacity or unemployment as defined in the policy.

The ombudsman's guidance is a useful reference point for what a fair claims process looks like: income protection policies provide a proportion of your income, and disputes most often turn on whether the insurer has applied its definitions and exclusions fairly⁸. The guide to making a claim covers the process in detail.

Complaints, protection and where to get help

If an insurer refuses a claim, delays it or handles it badly, you can complain first to the insurer and then, if you are not satisfied, to the Financial Ombudsman Service, which is free. Complaint volumes give a sense of where problems arise. In the first quarter of 2026/27 the ombudsman recorded 38 new complaints about Personal Accident Insurance and 224 about Roadside Assistance Insurance, alongside much larger volumes for products such as Car or Motorcycle Insurance at 4,096²⁹. In its annual data for 2025/26 the ombudsman recorded 4,451 complaints about Travel Insurance³⁰, and in the third quarter of 2025/26 it recorded 44 new complaints about Personal Accident Insurance³¹.

One structural point is worth knowing if your cover comes through work. The ombudsman says that if you have a complaint about the sale of a group accident policy provided by your employer, you will need to ask your employer to complain about the sale of the policy⁹. For a policy you bought yourself, you complain directly.

If the insurer itself fails, the Financial Services Compensation Scheme steps in. FSCS covers income protection insurance, also known as permanent health insurance or long-term disability insurance, at 100% where the firm failed on or after 3 July 2015; where the firm failed before that date the cover was 90%⁶. The guide to life insurance and FSCS protection explains how the scheme works.

Because these policies sit alongside state benefits, free help is available from more than one direction. Citizens Advice explains income protection insurance and your options³, and MoneyHelper and the ombudsman are the free routes for complaints and disputes. For the history of the market, the ombudsman's approach to payment protection insurance mis-selling⁷ and the site's PPI guide explain how these products were sold in the past and what redress looked like. For anything to do with a mortgage you are protecting, Shelter Cymru's guidance on mortgage protection is a free, independent starting point².