How Much Does Sick Pay Insurance Cost?
Your monthly premiums are calculated based on a variety of factors, including:
- Your age
We’re more likely to develop illnesses / injuries as we get older, so cover becomes more expensive as we age
- Any health conditions you have
An insurer may increase premiums if you have a pre-existing health condition or simply exclude it from coverage outright
- Your smoker status
Most, although not all, insurers charge smokers more to reflect the fact that they’re more likely to get ill, and to become more seriously ill, due to smoking
- Your occupation
Some jobs are riskier than others, with higher chances of workplace injuries. Furthermore, accidents and sickness are more likely to keep you from doing a physically-demanding manual role than they are to stop you doing a less demanding desk-based role, so manual workers are often more likely to make a claim.
In the below table, we’ve used our sick pay insurance calculator to compare quotes from the top UK insurers. To get indicative costs we’ve assumed that each individual is:
- In good health
- A non-smoker
- Looking for £1,500 in monthly benefits
- Seeking an 8 week deferral period
- Going to match their cease age with a retirement age of 65
- Looking for long-term cover.
The Sick Pay Insurance quotes below represent the cheapest policy that matches the above criteria from across the entire UK market. While the calculation offers a rough estimate of the price of cover, your circumstances will likely vary and so your own premiums could differ.
Policy Options Which Impact The Cost
As well as personal factors, you have a number of policy options to choose which will impact the cost of premiums. These include:
Level of Cover
The monthly benefit you receive each month. You can protect up to 70% of your gross earnings. The higher your benefit, the more expensive your premiums.
ADVISER TIP 🤓
Don’t simply go for the maximum benefit you can insure just because it’s available. This will mean higher premiums. Instead, carefully work out how much you need to cover your essential outgoings first.
Length of Cover / Policy Cease Age
This is the how long your policy will last. When you take out cover, you choose the date your policy ends, known as your cease age. You typically align this with your expected retirement age, at which point you should have access to other income, such as pensions.
Most insurers allow a cease age of all the way up to 70. However, the older your cease age, the more expensive your premiums.
How long the policy pays out a monthly income if you fall ill. This depends on the type of policy you choose.
Short-term budget income protection only pays out for up to 1, 2 or 5 years per claim.
Long-term sick pay insurance, on the other hand, pays out for as long as you need it, right up until your policy cease age if you can never work again.
We tend to recommend long-term cover over short-term options as it’s more comprehensive. However, if you’re on a budget, short-term protection is better than having no policy at all.
The length of time you have to wait before the policy pays out after you fall ill and stop working. The shortest deferred periods are 1 week, while the longest are 12 months.
The longer you can wait before the cover kicks in, the lower the cost of your cover.
Including Unemployment Cover
Some insurers offer Accident, Sickness & Unemployment (ASU) policies. These combine Accident & Sickness Cover with Unemployment Insurance in case you’re ever made redundant.
However, the sickness cover on such policies is often inferior to a traditional Income Protection policy.
For this reason, we typically recommend buying comprehensive Sick Pay Insurance and then, if you want redundancy cover, a separate Unemployment Insurance policy.
This will pay out for 12, 18 or 24 months if your employer makes you redundant, offering short-term reprieve so you can continue to meet your outgoings while you look for another job.
Type of Premium
The type of premiums you choose also impacts the cost of cover over time. You have two types of premium to consider when buying Sickness Insurance:
- Age-banded premiums
These premiums rise each year at a preset rate which is laid out in your policy documents. The increase is solely linked with your age and the increased risk of a claim as you get older.
- Guaranteed premiums
Fixed for the life of the policy. These do work out more expensive than age-banded premiums initially but, as they’re fixed, it’s often cheaper for the life of the policy.
IMPORTANT NOTICE 🧐
Some inferior products which include Payment Protection Insurance (PPI) offer cover with reviewable premiums. The insurer can increase premiums as it sees fit which could potentially make your cover unaffordable in the future.
Can A Limited Company Pay for Sick Pay Insurance?
If you’re a director of a business you can get suitable cover but it’s important to take advice. This is because, for tax reasons, most directors typically pay themselves a small salary and top the rest of their income up with dividends.
With your remuneration usually very different from the way employers pay their employees, insurers therefore need to consider your income in a different light.
There are some providers which offer specialist Income Protection for company directors. This is a scheme your business owns and pays for on your behalf.
In the event of a claim, the insurer pays the benefit into your business. It’s then up to you to distribute the payout in a tax-efficient manner in line with advice from your accountant.