Accident and Sickness Insurance

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18-11-2021

Accident and Sickness Insurance is a type of Income Protection designed to cover your monthly earnings if you are unable to work due to accident, illness or injury.

A traditional comprehensive sickness insurance policy will:

  • Cover up to 70% of your pre-tax income (this can include dividends if you are a company director)
  • Offer deferred periods which can start paying out a replacement income after as little as 1 week of absence from work.
  • Pay out long-term (covering you right up until your chosen retirement age).
  • Pay out on an ‘own occupation’ basis, meaning you’re covered if you can’t do your own specific job.
  • Have no automatic exclusions, with what you are and aren’t covered for being determined by your pre-existing medical history.

There is no better way to protect your monthly income against the risk of accident and sickness. In 2019, leading insurers Zurich and Vitality both paid over 96% of valid Income Protection claims.

EXPERT TIP 🤓
According to consumer group Which?, Income Protection is the one policy every working adult should consider.

What Does It Cover?

Unlike other forms of mortgage or bill protection, Sickness Insurance pays out a proportion of your total earnings so it’s not limited in terms of what it can protect.

For most people it can help you keep up with your essential outgoings and cost of living such as your:

  • Rent / mortgage payments
  • Household bills
  • Credit cards / loan repayments
  • Weekly grocery shop
  • Childcare costs
  • Other essential expenditure.

It provides peace of mind knowing you can maintain your standard of living and focus on recovery if you are out of work and unable to earn an income.

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Covering You For All Types Of Accident, Sickness & Injury

Sickness insurance is the only protection insurance which will cover your monthly income should you suffer any illness or injury which prevents you from doing your current job role.

Leading insurer LV= released their claims data detailing the most common reasons for an income protection insurance claim:

  • Mental health issues (29% of claims)
  • Musculoskeletal including back problems, accidents and fractures (25% of claims)
  • Cancer (15% of claims)

Getting Own Occupation Cover

For the most comprehensive cover you need to make you sure have Own Occupation cover. This will ensure your policy will pay a claim should you be unable to work in your own job role.

There are lesser definitions than own occupation which we would not recommend including suited and any occupation.

Are There Any Exclusions?

Yes, there are a few exclusions that most insurers apply to everyone. For instance, common exclusions include injuries or illnesses sustained:

  • In the course of criminal activity
  • From illegal / illicit drug use, substance abuse or alcohol misuse
  • During foreign travel to areas of active internal conflict, high terrorism risk, political instability or countries the Foreign and Commonwealth Office (FCO) has advised against visiting.

Does It Cover Pre-Existing Conditions?

As part of the application process you will answer a medical questionnaire declaring your current state of health so you know exactly what you will and won’t be covered for from the start.

If you disclose a medical condition, the insurer might:

  • Cover the condition irrespective of it being a pre-existing health condition with no change to the policy
  • Cover the condition for an additional premium
  • Exclude the condition but offer a date at which it will consider reviewing the exclusion
  • Exclude that condition entirely (perhaps with a premium discount to compensate).

Does it Include Unemployment & Redundancy Insurance?

You can add Unemployment Insurance for more comprehensive protection against loss of income due to forced redundancy.

It’s possible to buy Accident, Sickness and Unemployment Insurance (ASU) combined, but such policies may only pay out short-term and often have other limitations including musculoskeletal exclusions and reviewable premiums.

If Unemployment Insurance is desired, we often recommend purchasing traditional long-term accident and sickness insurance policy and ‘bolting on’ a separate Redundancy Insurance policy.

Types Of Unemployment That Are Not Covered

It’s important to note this cover will not usually pay out if you are made redundant / leave work for any of the following reasons:

  • Becoming voluntarily unemployed
  • You have chosen to take a career break (except to become a carer)
  • Become unemployed due to your own misconduct, fraud or dishonesty
  • Your unemployment is the result of industrial action.

Insurers will also typically decline cover if you have any prior knowledge of redundancy before setting up the policy, although how they define prior knowledge depends on your insurer.

Why Is Accident And Sickness Insurance Important?

When deciding if accident insurance is worthwhile it makes sense to weigh up the risk of something happening and the potential consequences:

Risk Of Illness & Injury

14.7% of the over-55s had been out of work for at least 6 months at some point during their careers, according to Drewberry’s Protection Survey.

Meanwhile, there were more than 2 million people who are what statisticians call ‘economically inactive’ due to long-term sickness in the 3 months to January 2019.

The risk of illness and injury – particularly long-term illness and injury – is higher than many people think and so getting this type of protection in place can provide an essential lifeline during such times.

Government Support & Other Safety Nets

With Employment & Support Allowance or ESA (the main state incapacity benefit) averaging at £74.35, someone who previously supported their family with their income could face severe financial hardship if they had to rely solely on benefits.

Although government benefits other than ESA are available, they rarely replace as much lost income as Accident & Sickness Insurance is designed to protect.

Samantha Haffenden-Angear, Independent Protection Expert at Drewberry

If you lost your income how would you continue to pay your bills if you didn’t have any Sickness Insurance?

We can often get by for a week or two but if that illness or injury means 6 months or more off work it could cause significant financial distress.

Samantha Haffenden-Angear
Independent Protection Expert

Even for those of us lucky enough to be able to survive with savings and sick pay, how long would these resources realistically last in a true health emergency?

Could I Use My Savings?

While some people think they could rely on their savings if they fell ill and couldn’t work, the reality is that for many of us our savings simply aren’t enough to support this.

2 in 5 Brits have no more than £1,000 put aside for a rainy day. Given average household expenditure is close to £600 per week, £1,000 would keep the average family afloat for less than a fortnight if a breadwinner couldn’t work.

Do you have enough put by if you couldn’t work for weeks or months?

Could I Rely On Company Sick Pay?

Some employers are generous and offer a set number of weeks or even months at full pay if you can’t work through accident and sickness.

However, this isn’t a majority of employers. Examine your contract carefully to see how long you actually get on full sick pay. It might not be as long as you think.

Many employers only offer the bare legal minimum. This is Statutory Sick Pay (SSP) at £95.85 per week for up to 28 weeks. Would this be enough to live on if you had no other money coming in?

Of course, if you’re self employed, then you have no employer or business to even provide statutory sick pay.

Self Employed Finance Blogger Mrs Mummypenny Recommends Sickness Insurance

With sickness insurance, however, you can claim financial support to help you through periods of long term poor health.

The benefits you receive from your insurance policy can be put towards all essential living expenses so you can focus on getting back on your feet.

As a self employed worker with little entitlement to government support and a young family Mrs Mummypenny recognised the acute need to protect her income should she suffer an accident or sickness.

How Does Accident & Sickness Insurance Work?

When taking out a Sickness Insurance policy it is important to understand how the policy works and the factors that will determine how you set-up you plan.

There are a few questions you will need to answer to ensure you are buying the most suitable cover for your needs.

What Level Of Cover Do You Need?

When setting up your cover you need to define the monthly income you want to protect. This is the amount you would receive from the insurer if you claim. It’s also known as the ‘sum assured’.

Some insurers will allow you to protect up to 70% of your gross income. It is important not to rush in and just choose the maximum but instead add up your anticipated outgoings if you were out of work.

Some things such as meals out or travel expenses are likely to reduce considerably and might not need covering.

The more you cover, the higher your premiums will be.

How Long Should Your Cover Last?

Typically you would look to set up your policy to align with either your expected retirement age or the end of your mortgage.

It should be aligned to an age where you could rely on other assets or income such as your pension provisions should you still be unable to work when the policy ends.

On A Budget Or Can You Afford Long Term Cover?

A traditional long term policy would pay a claim right up until your policy cease age if you were unable to return to work.

For those with a tighter budget some insurers now offer short term products which will only pay a claim for a maximum of 2 years.

These are significantly cheaper and some cover is always better than none at all. However, choosing a budget policy you run the risk of a claim stopping after 2 years and having nowhere to turn if you are still out of work.

Claims Period

Comprehensive
Full Term Claims Period

Budget
2 Year Claims Period

👇 ~ 40% Drop In Premiums

It is worth bearing in mind leading insurer LV= has an average Income Protection claim length of 7 years.

Setting An Appropriate Deferred Period

Your deferred period is the amount of time you are out of work before a claim will start being paid and it can make a huge difference to the cost of your policy.

If you receive any level of company sick pay or have significant savings you can extend your deferred to reduce your premiums.

Extending your deferred period from 4 weeks to 13 weeks can reduce your monthly premium by as much as 35%

Length of Deferred Period

4 Weeks

13 Weeks

👇 ~ 35% Drop In Premiums

Do You Need Indexation?

An often overlooked but very important option.

Choosing indexation ensures your level of cover rises each year with inflation. Should a claim arise an indexed policy will pay a claim that will have the same buying power in 20 years time as it does now.

Without indexation the buying power of your cover will be eroded every year.

A pint of milk cost a lot less 15 years ago than it does today and so if you are considering long term protection it is really important to consider indexing your policy.

Guaranteed, Age-Banded or Reviewable Premiums?

The premiums you choose can have a significant impact on the total cost of your policy. You have three different options to consider:

  • Guaranteed
  • Age-Banded
  • Reviewable

Guaranteed premiums are often the most expensive to start with but are fixed and won’t change. With Age-Banded premiums they will rise over time as set out in the policy terms.

Age-Banded are often initially cheaper but tend to become more expensive over the life of the policy.

With Reviewable premiums the insurer has the right to change monthly premiums over time. If they have a particularly bad claims experience or the market changes there is a risk that the monthly cost may become unaffordable as you get older.

How Much Does Sickness Insurance Cost?

The cost of Accident and Sickness Insurance will depend on a variety of factors, including:

  • Your level of cover
    The amount of income you’re looking to receive each month from the policy
  • Your age
    The older you are at the start of the policy, the higher the cost of Income Protection
  • Policy cease age
    The age at which you want the policy to end (usually your expected retirement age) will impact the cost of a policy, with an older cease age increasing premiums
  • Any health conditions you may have
    An insurer may look to increase the premiums if you have a health condition or simply exclude it outright
  • Your smoker status
    Smokers are more likely to get ill, and to become seriously ill, due to the detrimental health impacts of smoking
  • Your deferral period
    Similar to a car insurance excess, the deferred period reduces the cost of cover the longer you set it for.

Average Cost of Accident And Sickness Insurance In 2021

In the table below, we’ve calculated the cheapest monthly cost of a long term sickness insurance policy having compared the premiums from the top 10 UK insurers using our quote tool.

To work out the cost of Income Protection, we’ve assumed:

  • The person is a healthy office worker
  • They want a benefit of £1,500 a month
  • They’re looking for an 8 week deferral period
  • Their cease age will be age 65
  • They’re looking for long-term cover
  • They want guaranteed premiums for the life of the policy.

The premiums calculated below are the cheapest quotes for a comprehensive sickness insurance policy.

There are policy factors you can change including opting for short term cover and a longer deferred period if the cost of comprehensive cover sits outside your budget.

Age

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Accident & Sickness Insurance

Age 25

£26.77

£36.09

Age 35

£39.13

£49.58

Age 45

£56.35

£84.31

Sickness Insurance quotes accurate as of March 2021

If you would like to work out the cost for your own cover based on your needs you can use our quote tool which compares all the leading UK insurers including Aviva, Vitality and Legal & General → 

Will My Sickness Insurance Claim Be Paid?

Firstly, if you suffer an illness or injury that you believe will keep you out of work for longer than your deferred period you should notify your insurer immediately.

While you will not be able to claim your benefits until the end of your deferred period, it is vital that you make your claim as soon as you are unable to work so that your insurer can keep track of how long it has been since you stopped working.

Providing Your Medical Evidence

When you make a claim, you will need to provide your insurer with a completed claims form and evidence of your health condition which prevents you from working, which is usually given in the form of a note from your GP.

Once you’ve been out of work for longer than your deferred period, you’ll begin to receive a tax-free monthly income from the policy until either:

  • You’re well enough to return to work
  • You reach the end of your claims period (1, 2 or 5 years for short-term policies)
  • Or the policy ends (typically at retirement, for long-term cover).

Neil’s Cancer Claim With British Friendly

Neil is a client of Drewberry and took out a self employed Accident and Sickness Insurance policy with British Friendly. He was a member for 4 years before he needed to claim.

He became unwell and had pains in his stomach. After consulting his GP and having some further tests Neil was diagnosed with stage 2 Bowel Cancer and needed to make a claim.

🤕 Read More About Neil’s Claim

Which Insurers Pay The Most Claims?

The vast majority of Income Protection policies now have their claims statistics published which is a real step forward in building trust.

Each year the Association of British Insurers (ABI) publishes average payout rate statistics from across all insurers. The latest figures are from 2019 and show that 87.2% of all Income Protection claims were paid, with over £669 million paid out in total.

Insurer

2017

2018

2019

Aegon

92.1%

93%

100%

Zurich

87%

95%

98%

Vitality

96%

97.8%

96.4%

Shepherds Friendly

96%

95.8%

96.3%

Cirencester Friendly

94.7%

95.2%

95.7%

Holloway Friendly

96%

98%

94%

British Friendly

92.4%

94.7%

94%

Liverpool Victoria

96%

95%

93%

The Exeter

91%

93%

91%

Aviva

88.8%

86.3%

85.7%

Legal & General

95%

95%

82%

Payout statistics alone should not be used to decide which insurer offers the best Income Protection.

Instead, payout rates should be used as a rough guide to compare successful claims across the industry as a whole.

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Common Income Protection Insurance Questions

  • Are Self Employed Eligible For Sickness Insurance?

    Yes, you can get cover if you’re self-employed.

    In fact, it’s perhaps even more important to have cover if you are self-employed. You don’t get any sick pay when you work for yourself after all.

    Providing you work at least 16 hours a week and can prove your earnings, you should be able to find cover to suit your needs.

    Many of our clients are self-employed, or are contractors or company directors, so we’re used to helping people who work this way get the coverage they need.

  • How Is It Different To Critical Illness Insurance?

    Critical Illness Insurance only covers ‘serious’ illnesses (for example cancer, heart attacks and strokes). You must develop an illness at a specified severity to make a claim.

    Accident and Sickness Insurance, on the other hand, pays out for any illness or injury that keeps you from working.

    You can claim as many times as you need to with a Sickness Insurance policy. However, with Critical Illness Cover, the cover ends as soon as you develop an illness meeting the definition for a full payout.

  • Can I Include Unemployment Cover?

    Some insurers let you to add Unemployment Insurance to your Sickness Insurance cover.

    As well as covering you for illnesses and injuries, Accident, Sickness and Unemployment policies (ASU) will also pay out if your employer makes you redundant through no fault of your own.

  • Is Sickness Insurance Taxable?

    If you are looking to take out personal Accident and Sickness Insurance as an individual then it is not a taxable benefit. If you need to claim, the insurer pays you a monthly benefit straight into your bank account completely tax-free.

    This is because, when you buy this protection, you pay using earnings HMRC has already deducted tax and National Insurance from. As you’ve therefore already effectively paid tax on the premiums, the payout is totally tax-free.

    Company Paid Sickness Insurance Is Taxable

    Contractors and directors of a limited company have an executive option where the business pays for the sickness insurance on their behalf.

    With a business owned policy the premiums can often be offset against corporation tax however should a claim arise the monthly payments will be taxed as income

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Compare UK’s 12 Best Sickness Insurance Providers In 2021

As an independent insurance broker our team work with all the top UK insurers to find our clients the most competitive policy for their needs.

Where we all have a unique combination of job risks, medical history and lifestyle it can often take a bit of research to ensure we find the right match.

Although not exhaustive, below is a list of insurers we tend to work with most. For each of these providers we link to our in-depth expert review of their individual accident and sickness insurance products.

It’s important to properly compare quotes from every provider. That way, you can be sure you’re getting the best deal.

As with many things in life, it’s not always the cheapest plan that’s the best. It might be worth paying a little more for better coverage.

Additional Benefits & Support Services

Another important area of comparison is the additional benefits on offer from various insurers. These are services available, almost always for free, alongside the core Sickness Insurance cover.

Insurers offer many of these support services with your wellness in mind. They can help reduce the chances of you needing to claim or help speed up your recovery if you do fall ill.

Additional benefits may include:

  • Remote GP appointments and prescription service
  • Medical helplines, offering convenient telephone access to trained doctors and nurses for advice on minor medical ailments
  • Physiotherapy
  • Counselling including cognitive behavioural therapy sessions
  • Small funeral death benefit paying out like Life Insurance
  • High street discounts
  • Discounts on gym memberships / fitness trackers
  • Hospitalisation benefit, paying out a cash benefit each day you spend as an inpatient in hospital
  • Second medical opinion service, providing access to world-leading medical experts to offer a second opinion on a diagnosis or course of treatment.

Many such services are available to not only you as the policyholder but also your immediate family, such as your spouse / civil partner or dependent children.

Compare Sickness Insurance Quotes & Get Expert Advice

With all nuances and potential pitfalls to avoid we are here to support.

We have an expert team on hand to provide you with all the information and knowledge you need to set-up the most appropriate financial protection for you and your loved ones.

Why Speak to Us?

We started Drewberry™ because we were tired of being treated like a number.

We all deserve a first class service when it comes to issues as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

If it is all getting a little confusing and you need some help then please do not hesitate to get in touch. Pop us a call on 02084327333 or email help@drewberry.co.uk.

Very helpful from start to finish. Talked through all the points and gave great advice.

Darren Comer
16/05/2021
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