What is Sick Pay Insurance? Do I need it? How much does it cost?

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18-02-2020

Sick Pay Insurance provides a monthly income if you are unable to work due to accident or sickness.

Not everyone gets employer sick pay from their job – including the self-employed and company directors – while many other people only get the bare legal minimum (Statutory Sick Pay at £95.85 per week).

For those in this position, Sick Pay Insurance can step in to replace lost earnings while they are too ill or injured to work.

  • It can help you keep up with all your essential outgoings while off work sick, from your mortgage / rent to bills, utilities, groceries and car running costs.
  • Cover up to 65% of your gross annual income.
  • Choose cover which can pay out from as short as 1 week of illness or injury.
  • Protect your income for the rest of your working life right up until your expected retirement age.
  • In 2018, leading insurers Liverpool Victoria and Legal & General both paid 95% of valid Income Protection claims.

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

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What Does Sick Pay Insurance Cover?

Sick Pay Cover is designed to protect against anything that medically prevents you from doing your job. It’s there to cover the risk of:

  • Accidents and bodily injuries
  • Illnesses and periods of sickness absence.

Assuming you take out a policy with an ‘own occupation’ incapacity definition, you’ll be covered for any health condition that prevents you from working in your specific job role.

What Doesn’t Sick Pay Insurance Cover?

As with all insurance policies there are some common exclusions. These typically include illness or injuries sustained:

  • During the pursuit of criminal activities
  • As a result of illegal or illicit drug use, or resulting from substance or alcohol misuse
  • During travel to areas of active internal conflict, high terrorism risk, politic instability, countries that the Foreign Office has advised against all travel to and zones with active epidemics.

Other than that, what you are and aren’t covered for is simply determined by your pre-existing medical history.

Pre-existing Health Conditions
Pre-existing medical conditions need to be declared when setting up your Sick Pay Insurance and each insurer has their own stance on whether or not they will provide cover.

With existing health conditions most insurers will either:

  • Exclude
  • Exclude with a date it can be reviewed
  • Cover the existing condition for an additional premium
  • Cover the condition on standard terms

If you have pre-existing medical condition it is worth popping us a call. We have direct access to the underwriters at all the top UK insurers and can make sure you get the best possible terms.

Please don’t hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.

Do I Need Insurance to Cover Sick Pay?

The risk of being out of work through accident or sickness is higher than many people would think. It’s all too easy to assume that you won’t need Sick Pay Insurance. However:

What do you have to fall back on if you were off work sick?

For many people, the safety net isn’t as robust as it could be.

For instance, the average UK family spends upwards of £500 per week, yet our Drewberry Wealth & Protection Survey revealed that 2 in 5 of us have no more than £1,000 in savings – just 2 weeks’ expenditure – to cushion the blow if they couldn’t earn.

While some of us are lucky enough to get sick pay from an employer, not everyone does. Even where sick pay is available, it may only be minimal Statutory Sick Pay at £95.85 per week.

The graph below shows the potential drop in income should you have to survive on Statutory Sick Pay alone.

Monthly Income vs Statutory Sick Pay Graph

Sick Pay Insurance is therefore often a hugely important lifeline, especially for the self-employed who aren’t entitled to any employer sick pay at all.

If you had to rely on state benefits if you were out of work, these can also fall short of average household expenditure.

The main state benefit if you’re off work is Employment and Support Allowance (ESA), which is now part of the new Universal Credit. This starts at just £74.35 per week for the over-25s.

While other government benefits are available, these depend on the nature of your disability and your circumstances. Even combined these rarely add up to pre-incapacity household expenditure.

Self Employed Statutory Sick Pay Entitlement

One of the most common questions we get asked is whether the self employed can get statutory sick pay.

It is important to note that although being self-employed can offer freedom and autonomy, one of the downsides is that you are not entitled to statutory sick pay.

Should an employed worker be off sick they are usually contractually entitled to 26 weeks of Statutory Sick Pay from their employer which is worth £95.85 per week. Many employers offer more than this as standard.

If you’re self-employed you need to look after yourself. If you have no self employed sick pay insurance you’ll have to see if you can claim government incapacity support, known as Employment and Support Allowance. This is part of the new Universal Credit and starts at £74.35 for over 25s.

Although other government benefits are available depending on the severity of your illness, they’re rarely sufficient to replace average UK household expenditure of more than £500 per week.

Who Should Get Sick Pay Protection?

Which? Money states that Income Protection is the one protection policy all working adults should consider, a statement we wholeheartedly agree with. However, there are some groups of people who are particularly vulnerable and therefore we feel would benefit the most from cover:

  • Self Employed and Contractors
    Working for yourself has a lot of perks, but it usually comes at a cost of any employer sick pay. Without this, how would you cope if you couldn’t work?
  • Those without sick pay / savings
    Even those working for an employer sometimes don’t get any sick pay and if you don’t have the means to support yourself with savings you’re especially at risk.
  • Risky occupations
    Some jobs are particularly risky, such as those involving manual work where the risk of on-the-job injury is higher than for a desk worker and what may be a fairly minor injury could prevent you from working.
Occupations who need sick pay insurance

Who Doesn’t Need Sick Pay Insurance?

We stand by the above statement from Which?, but the reality is that certain people simply wouldn’t benefit from Sick Pay Insurance.

This might be if you have plenty of savings to fall back on, get generous, long-term employer sick pay, have a partner whose income could pick up the slack if yours dropped out or anyone else who may be able to cope without their income.

How Does Sick Pay Insurance Work?

Sickness Insurance is designed to replicate sick pay that you don’t receive from an employer or to provide a boost to a low level of sick pay / state benefits you’re entitled to.

It pays out a regular monthly income until either you’re well enough to return to work, your payment period runs out or until retirement (if you’ve selected long-term cover and are so incapacitated you can never work again).

When setting up Sick Pay Protection, there are four major decisions you’ll have to make which will have an impact on the cost of cover:

  • Sum assured
    This refers to how much you’ll need as a benefit each month. You can typically cover between 50% and 70% of your gross (pre-tax) income depending on your insurer. While going for the maximum may seem tempting, it will push up the cost of cover so it may be sensible to only consider covering the essentials.
  • Your deferral period
    How long you can wait before you need to cover to kick in. Think about how long you could comfortably rely on savings / sick pay / other resources and consider setting your deferred period for that length of time. A longer deferred period will notably reduce the cost of cover compared to a shorter one.
  • Policy cease age
    How long your policy will last for. Most Sick Pay Insurance policies offer cover right up to state retirement age and beyond – as far as up to age 70 – but the older your policy cease age the more expensive your insurance will be.
  • Your payout length
    Short-term Sick Pay Insurance will only offer cover for a maximum of 1, 2 or 5 years per claim. Long-term cover will protect you for as long as you need it, right up until your policy cease age if you can never work again.

Your Premium Options

There are three main types of premium to consider when choosing sickness pay insurance if you are out of work:

  • Reviewable premiums
    The insurer can ‘review’ these at any time they see fit for a variety of reasons, from poor economic performance to a spike in claims in a given year. While these premiums usually work out cheaper at the start, they can be reviewed with time, meaning you may not know how much you’ll pay for cover from one year to the next.
  • Age-banded premiums
    These premiums also start out cheaper but rise over time. However, unlike reviewable premiums the insurer can only increase these by a preset amount each year laid out in your policy documents and the rises you’ll face are solely linked to your age and the increased risk of you claiming as you get older.
  • Guaranteed premiums
    Guaranteed for the life of the policy. These usually work out a little more expensive initially but are then fixed throughout the policy’s term. This can save money across the life of the policy, especially if you take out cover when you’re young and healthy right up until retirement as premiums are locked in from the point the policy goes live.

Indexing Your Sick Leave Insurance

Inflation is an economic force that acts upon the price of goods and services, usually pushing them higher year-on-year.

Think about the cost of a pint of milk 10 or 20 years ago – it cost a lot less back then! This is because inflation has acted on the price of milk and other goods and services over time.

This means that if you live on a fixed income, you may struggle to keep up with the cost of living because your income will remain the same but prices will continue to rise.

To solve this problem, you can opt to index link your insurance so that the payout keeps pace with inflation.

Each year, the insurer will write to you to inform you of the change to the retail prices index and to say that, if you agree, your benefit will rise by that amount so that it doesn’t get eaten away by inflation.

To compensate for the higher benefit, your premiums will also rise.

Indexation isn’t necessarily as important if you’re only going to hold the policy for a relatively short period, but with a long-term Sickness Insurance policy indexation is usually a good option to consider.

Your Definition of Incapacity

It’s vital to understand the definition of incapacity because this will impact on your ability to claim. It essentially determines the level of impact your accident or sickness must have on your working life before you can receive a payout.

There are three main definitions of incapacity to choose from when setting up Sick Pay Insurance:

Own Occupation Cover

Own occupation cover means that you will be entitled to your benefits as long as your injury or illness prevents you from working in your specific job role.

For example, an architect who injures their hand wouldn’t be able to complete technical drawings and so could make a claim.

Suited Occupation

Policies that use a suited occupation definition of incapacity mean that in order to claim benefits, you have to be unable to undertake your current job role or any other job where you may have experience or education to perform.

So where an architect with a hand injury may not be able to do their own job, they may not necessarily be able to claim under a ‘suited occupation’ definition because have the skills and experience to do another job role suited to them.

Any Occupation / Work Tasks

This definition of incapacity means you can only claim if you’re so totally unfit to work that you can’t work in any occupation / perform a set number of tasks required at most basic jobs, such as signing your name or typing.

This definition of incapacity is the most difficult to claim on and in general we’d recommend it is best avoided.

Making A Claim

Neil’s Cancer Claim With British Friendly

Neil is a client of Drewberry and took out an Income Protection 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

Lucy Claimed After Injuring Her Back

Lucy is a designer. In the last tax year she earned £48,000.

After reviewing her monthly expenditure, Lucy decided to take out a long-term policy with a deferred period of 4 weeks covering 50% of her annual earnings, totalling £24,000 or £2,000 per month.

18 months after taking out the policy, Lucy had a fall and injures her back preventing her from working for 6 months whilst she undergoes treatment and makes a full recovery.

Making Her Claim
Lucy spoke with her insurer as soon as she knew she was likely to be out of work for more than 4 weeks. The claims form got completed and sent off to the insurer with supporting medical evidence. The insurer worked with Lucy and her doctor to approve the claim as quickly as possible.

The claim was successful and the benefit started being paid after her 4 week deferred period. Lucy relied on savings for the first 4 weeks until she received her first benefit payment of £2,000 from the insurer.

Over the 6 months she was out of work Lucy received five monthly payments of £2,000, totalling £10,000. These monthly payments enabled her to meet her mortgage repayments and other everyday bills so she could focus her attention on her recovery and getting back to work.

Will A Claim Be Paid?

The vast majority of Income Protection providers now publish their claims statistics 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 2017 and show that 87.2% of all Income Protection claims were paid, with over £600 million paid out in total.

Below is a table of the top 5 providers by their claims payout rate.

Insurers
2017
Aegon
96%
Liverpool Victoria
96%
Shepherds Friendly
96%
Vitality Life
96%
Legal & General
95%

How Much Does Sick Pay Insurance Cost?

The monthly premium will depend on the above policy factors, as well as a range of personal factors, such as:

  • Your age
    The older you are at the start of the policy, the higher the cost of Income Protection
  • 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.

Average Cost of Sick Pay Cover

In the below table, we’ve laid out the average monthly cost of Sick Leave Insurance.

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

  • The individual is a healthy self-employed plumber
  • 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 to guarantee their premiums for the life of the policy.

The quotes below were pulled from our income protection quote tool and represent the cheapest policy that matches the above criteria from across the entire UK market.

Age 25

Age 35

Age 45

£36.78

£49.58

£92.73

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Common Sick Pay Insurance Questions

  • Can we take out Sick Pay Insurance for employees?

    If you’re a company looking to provide sick pay insurance for employees, you’ll need to consider a Group Income Protection policy.

    • You usually need a minimum of 5 employees to set up a group policy.
    • The policy is paid for by the company for the benefit of the employees.
    • You can choose to cover all employees or only those of a certain seniority.
    • You need to choose the deferred period and opt for either long term or short term budget cover.
    • Should a claim arise the benefit is paid to the company who then pay the employee’s sick pay entitlement via PAYE.
    • Many insurers include extras such as an Employee Assistance Programme and Back to Work scheme, which can really help in managing your sickness absence and sick pay liability.
  • Can I add Unemployment Insurance to my Sick Pay Cover?

    Unemployment cover protects you if you’re made forcibly redundant from your job through no fault of your own.

    It will pay out for 12, 18 or 24 months if you’re out of work through redundancy, offering short-term reprieve so you can continue to meet your outgoings while you look for another job.

    One of the most common forms of Sick Pay Insurance offered is Accident, Sickness and Unemployment (ASU) cover, which effectively merges Unemployment Insurance with Accident and Sickness Cover.

    Can I Get Unemployment Cover if I’m a Contractor or Self-Employed?

    It’s possible to take out Unemployment Insurance if you’re a contractor or self-employed, but you should think carefully before doing so as it may not be suitable for your needs.

    This is because to make a successful claim on an unemployment policy, you have to be put out of work through no fault of your own. This is something that’s difficult to argue if you’re self-employed and your own boss, which could lead to a claim being denied.

  • Who can get Sickness Benefit?

    To qualify for Sick Pay Insurance, you generally need to be working at least 16 hours per week.

    This can be part-time, full-time or self-employed work, or you could be working as a contractor or company director.

    You can apply for Income Protection if you have pre-existing conditions, but be aware that the insurer is likely to exclude these conditions from cover or at the very least put a ‘loading’, or premium increase, on your policy to take into account the added risk they’re bringing onboard by insuring you.

  • Are Contractors and Company Directors eligible for Sick Pay Cover?

    If you are a Company Director you are still eligible for Sick Pay Insurance but it’s important you get advice. For tax reasons, directors typically pay themselves a small salary and pay the rest of their income in dividends.

    This is obviously very different from the way an employed individual is paid and so your income needs to be considered in a different light.

    Can My Limited Company Pay for Sick Pay Insurance?

    There are a small number of providers who offer specialist Income Protection for company directors. It is an individual policy which is owned and paid for by the limited company and acts like a Group Income Protection scheme but for a single employee or director.

  • Will I need a medical exam to get Sick Pay Cover?

    A number of different factors will determine whether you require a medical or nurse screening. If you’re young, healthy and applying for a modest benefit, a medical may not be required and you could be accepted without one.

    If, however, you’re a little older, applying for a high benefit or have some health problems, the insurer may require further medical evidence.

    This might include:

    • A telephone interview with a nurse to answer some basic medical questions
    • A basic health screening with a trained nurse, where they’ll take your height, weight and blood pressure
    • A GP report, where they write to your GP to enquire about any medical history relevant to the application
    • A full medical with a doctor, including blood tests and urinary analysis.

    As a rule of thumb, the older you are, the more health problems you declare or the higher the benefit, the more likely you are to go through some sort of medical.

    All medicals required by the insurer are paid for by the insurance company and are done to fit around you.

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Compare Sick Pay Insurance UK Providers

AIG logo

AIG

AIG is one of only a handful Income Protection providers to offer cover for individuals with type 2 diabetes. It is also willing to offer diabetics guaranteed premiums and will not exclude diabetes in its policy, unlike other providers.

  • Maximum coverage: 60% of the first £30,000 of your salary / 55% of salary between £30,000-£100,000 / 45% of any salary £100,000+
  • Deferred periods: 4 / 8 / 13 / 26 / 52 weeks
  • Maximum entry age: 54
aviva

Aviva

Aviva covers all policyholders with an own occupation definition of incapacity and, if you choose to return to work in a different occupation until you are well enough to return to your pre-incapacity occupation, Aviva will top up your reduced income with Back to Work Benefits.

  • Maximum coverage: 55% of your pre-tax salary, up to a maximum of £240,000 per year.
  • Deferred periods: 4-104 weeks (104 weeks is the longest available deferred period for UK Accident & Sickness policies)
  • Maximum entry age: 59
british friendly

British Friendly

British Friendly gives access to its Mutual Benefits program, which provides rewards such as vouchers for high street shops, discounted fitness tracking devices, emotional support services and online legal services.

  • Maximum coverage: 70% of your pre-tax salary, up to a maximum of £45,000 per year.
  • Deferred periods: Day 1 / 1 / 4 / 8 / 13 / 26 / 52 weeks
  • Maximum entry age: 64
  • One of the few insurers that will cover pilots on an own occupation basis
cirencester friendly

Cirencester Friendly

Cirencester Friendly provides you with a range of additional benefits and services, including a hospitalisation benefit and a Friendly Voice service that provides you with a personal nurse that you can contact for advice and emotional support.

  • Maximum coverage: 65% of your pre-tax salary, up to a maximum of £65,000 per year.
  • Deferred periods: Day 1 or 4 / 8/ 13 / 26 / 52 weeks
  • Maximum entry age: 54
the exeter

The Exeter

The Exeter is one of the few UK insurers that is able to offer own occupation cover to workers in higher risk occupations, although such policies only offer age banded premiums.

  • Maximum coverage: 60% of your gross salary up to the first £100,000 and 40% of any additional income.
  • Deferred periods: Day 1 / 1 week / 4 weeks / 8 weeks / 13 weeks / 26 weeks / 52 weeks
  • Maximum entry age: 59
legal & general

Legal & General

L&G comes with a free life cover element that pays out a maximum of 12 times your monthly benefit if you pass away while the policy is in force.

  • Maximum coverage: 60% of your annual income before tax, up to a maximum of £200,000 per year.
  • Deferred periods: 4 /13 / 26 / 52 weeks
  • Maximum entry age: 60
liverpool victoria

Liverpool Victoria

LV offers free access to unique LV Doctor Services, which include fast access to remote GP services, second opinion services and private prescriptions for policyholders and their children up to the age of 16.

  • Maximum coverage: 60% of your annual income before tax, up to a maximum benefit of £12,500 per month
  • Deferred periods: 1 month / 2 months / 3 months / 6 months / 12 months
  • Maximum entry age: 59
royal london

Royal London

Royal London can include Fracture Cover, which pays out a lump sum of between £1,500 and £4,000 on top of any benefit you’d receive for being off work if you receive a fracture of a specified body part

  • Maximum coverage: 65% of the first £15,000 income and 55% of the remainder, up to a maximum of £250,000 per year
  • Deferred periods: 4 / 8 / 13 / 26 / 52 weeks
  • Maximum entry age: 59
Shepherds friendly

Shepherds Friendly

Shepherds Friendly allows you to apply to suspend cover and premium payments under your plan for a minimum continuous period of 3 months and up to a maximum continuous period of 24 months. This is known as ‘Career Break’ option.

  • Maximum coverage: 70% of income up to £49,000 per year
  • Deferred periods: Day 1 / 1 week/ 4 weeks / 8 weeks / 13 weeks / 26 weeks / 52 weeks
  • Maximum entry age: 60
Vitality

Vitality

Vitality provides a unique offering. While the core of its policy is similar to other providers’ offering, it also offers a unique set of additional benefits to those who participate in the Wellness / Optimiser programs that can include policy discounts and rewards.

  • Maximum coverage: 60% of your earnings capped up to £2,500 per month and 50% of any earnings above, up to a maximum of £16,666 per month
  • Deferred periods: 1 week / 1 / 3 / 6 / 12 months
  • Maximum entry age: 59

Need Sick Pay Insurance Quotes and Advice?

We are here to ensure you and your family don’t miss out on financial security because you didn’t have appropriate sick pay insurance in place.

Our Sick Pay Insurance calculator will allow you to compare work insurance quotes from all of the leading UK providers so you can get a good idea of the potential cost.

Given the complexities of taking out the right cover particularly for the self employed, we would recommend speaking to on our team of experts. They are on hand to provide you with all the necessary information for you to make an informed decision.

Why Speak to Us…

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.

  • There is no fee for our service
  • We are independent and impartial
    Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
  • We’ve got bargaining power on our side
    This allows us to negotiate better premiums for you than you going direct yourself.
  • You’ll speak to a dedicated expert from start to finish
    You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
  • Benefit from our 5-star service
    We pride ourselves on providing a 5-star service, as can be seen from our 2836 and growing independent client reviews rating us at 4.92 / 5.
  • Gain the protection of regulated advice
    You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
  • Claims support when you need it the most
    You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.
Tom Conner Director at Drewberry

When setting up suitable Sick Pay Insurance it can all end up a little confusing and there are a number of pitfalls to avoid.

If you need any help please do not hesitate to pop us a call on 02084327333 or email us at help@drewberry.co.uk.

Tom Conner
Director at Drewberry

I had a great experience with Drewberry, they have a lot of knowledge and expertise with life insurance and income protection and were able to advise me and arrange suitable products. Highly recommend.

Lachlan Mellings
12/08/2020
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