What Is Sick Pay Insurance? How Much Does It Cost?

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19-11-2020

Sick Pay Insurance pays out a proportion of your gross monthly income if you’re unable to do your own occupation due to any illness or injury. It’s also known as Accident & Sickness Insurance.

If you have limited or no sick pay entitlement, the insurance can step in to replace lost earnings while you’re too ill or injured to work. It ensures you can keep up with all your essential outgoings if you’re off sick including:

  • Mortgage / rent
  • Bills
  • Utilities
  • Groceries.

What Does It Cover?

Assuming you choose a policy with the own occupation definition of incapacity, your insurer covers you for any health condition that stops you doing your specific job.

  • It pays out if you’re medically unable to do your own job
  • Covers up to 70% of your gross monthly income depending on your insurer
  • Can start paying out from as little as 1 week off sick
  • Protects your income for the rest of your working life right up until retirement if you opt for long-term cover.

Sick Pay Insurance protects your income, which makes it one of the most important forms of protection you can consider. After all, it’s your income which pays for everything in life that we need.

EXPERT OPINION 🤓
Consumer group Which? believes that Income Protection is the one policy every working adult should consider.

Does It Cover Pre-Existing Conditions?

You need to declare any pre-existing conditions when you set up Sick Pay Insurance. Each insurer then has their own stance on how they will provide cover based on your condition(s), your circumstances and its appetite for risk.

If you have an existing health condition, an insurer might:

  • Cover the condition and apply standard terms (so you won’t face any difference in the price or terms of your cover compared to a healthy individual)
  • Cover the condition but require you to pay an additional premium
  • Exclude the condition but offer a date at which it will consider reviewing this
  • Exclude it entirely (potentially with a premium discount to compensate for this).

If you have a pre-existing medical condition it is best discussing your options with an expert. We have direct access to the underwriters at every top UK insurer and can therefore help you get the best possible terms.

If you need help give us a call on 02084327333 or email help@drewberry.co.uk.

Are There Any Exclusions?

As with all insurance policies there are some blanket exclusions which apply to everyone. These typically include illness or injuries sustained:

  • During the pursuit of criminal activities
  • As a result of illegal / illicit drug use, or from substance / alcohol misuse
  • During travel to areas of active internal conflict, high terrorism risk, political instability or countries that the Foreign and Commonwealth Office (FCO) has advised against travelling to.

Other than that, your insurer determines what your policy covers based on your medical history.

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Do I Need Illness Insurance?

The risk of being out of work through accident or sickness is higher than many people realise. While it’s easy to assume that you won’t need Sick Pay Insurance, it’s worth considering that:

Despite this risk, it’s worth considering that the self-employed and company directors have no employer to offer sick pay if they do fall ill. Even if you do have an employer, many only offer the legal minimum in benefits (Statutory Sick Pay at £95.85 per week).

Like Mrs Mummypenny, that’s why many people take out cover for the valuable peace of mind it can offer.

Could I Rely On Other Safety Nets?

Of course, Sick Pay Insurance isn’t the only option to protect your earnings if you’re too ill to work. However, for many people other options aren’t always viable alternatives.

Savings Fall Short

For instance, the average UK family spends more than £500 per week. Despite this, our Drewberry Wealth & Protection Survey shows that 2 in 5 people have no more than £1,000 in savings.

This means a sizeable proportion of people have less than 2 weeks’ expenditure saved up to cushion the blow if they couldn’t earn.

Minimal State Benefits

Also, while a lucky few get full sick pay from their employers, this isn’t true for everyone. You may only be entitled to minimal pay, typically Statutory Sick Pay (SSP) at £95.85 per week.

Your employer must offer you at least Statutory Sick Pay for the first 28 weeks of your illness, but anything above this is discretionary.

If you’re not entitled to SSP, perhaps because you’re self-employed or don’t earn enough to meet the threshold for SSP, then the main state benefit if you’re off sick is Employment and Support Allowance (ESA). This starts at just £74.35 per week for the over-25s depending on the nature of your disability.

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

Are The Self Employed Entitled To Sick Pay?

One of the most common questions our clients ask is whether the self-employed get Statutory Sick Pay. Unfortunately, if you work for yourself you don’t get SSP as there’s no employer to pay it.

That means the self-employed need to look after themselves. Without any form of personal income protection, the self employed have to rely on the less generous Employment and Support Allowance.

Given all of the above, Sick Pay Insurance can be a hugely important lifeline for many people.

How Much Does Sick Pay Insurance Cost?

Your monthly premiums depend on various 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.

Example Premiums

In the below table, we’ve laid out the average monthly cost of Sick Leave Insurance. To do this, 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 they offer a rough estimate of the price of cover, your circumstances will likely vary and so your own premiums could differ.

 .

Manual Role

Office Role

Age

Plumber

Accountant

25 years old

£33.15
per month

£24.05
per month

35 years old

£38.85
per month

£35.31
per month

45 years old

£60.71
per month

£58.61
per month

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.

Payout Period

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 cover, 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.

Deferred Period

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.

How Do I Make a Claim?

Once you have a policy in place, making a claim is fairly simple.

Firstly, it’s important you speak to your insurer as soon as you think you’re going to be out of work for longer than your deferral period. This gives your insurer plenty of time to assess your claim.

Then you fill in a claims form. This used to be a physical document, but increasingly insurers are allowing online submissions. You send off your claim with supporting medical evidence which will need to be approved before your monthly income payments will commence.

Neil’s Cancer Claim With British Friendly

Neil is a Drewberry client who bought a British Friendly Income Protection policy. He had the cover for 4 years before he needed to claim.

It started when he became unwell with stomach pains. After visiting his GP and having some tests, consultants diagnosed Neil with stage 2 bowel cancer. He was unable to work while he had surgery and recovered, so made a successful claim with British Friendly.

🤕 Read More About Neil’s Claim

Which Insurers Pay the Most Claims?

Most people understandably want to choose cover by picking the insurer that’s most likely to pay out when they need it the most.

However, it’s actually fairly hard to distinguish one provider from another in this area. Payout rates across the industry are not only higher than many people assume but are also fairly uniform.

For example, as you can see in the table below, most insurers pay more than 90% of all claims they receive.

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%

IMPORTANT NOTICE 🧐
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.

Beware Payment Protection Insurance (PPI) ⚠️

Beware as some insurers and websites label Payment Protection as Income Protection even though it is a far inferior product.

Payment Protection Insurance (PPI) has quite rightly had some bad press over the years. While it may sound similar to Sick Pay Insurance, it is in fact very different from a truly comprehensive sickness insurance policy.

Firstly, Payment Protection Insurance only pays out short-term. This means if you were so ill you could never work again it would stop paying out after a set period, even if you still couldn’t work.

Secondly, insurers don’t medically underwrite PPI. That means you don’t know what your policy will and won’t cover you for until you need to claim.

Lastly, PPI often includes blanket exclusions on conditions such as back pain and mental health concerns, which represent some of the most common claims on Sick Pay Insurance.

Who Are The Top UK Sick Pay Insurance Providers?

Ultimately, the best provider for you depends on your circumstances.

That’s because different insurers prefer different risks. For example, some are more competitive for higher-risk and manual occupations, while others are better if you want a longer deferred period.

There are a range of insurers to choose from — we work with all the leading UK insurers which include:

It is vital to compare quotes from all the leading UK providers to ensure you are getting the most competitive cover for your personal circumstances.

Our online quote comparison tool will do the hard work for you, while our experts are on hand to help answer any questions you may have. If you need help give us a call on 02084327333 or email help@drewberry.co.uk.

Additional Benefits

Another important area of comparison is the additional benefits on offer from various Income Protection insurers. These are services available, almost always for free, alongside Sick Pay Cover.

Insurers have designed many such benefits with overall wellness in mind. You can therefore use them to reduce the chances of you needing to claim or to help speed up your recovery if you are ill.

Additional benefits may include:

  • Remote GP appointments
  • Medical helplines, offering convenient telephone access to trained doctors and nurses for advice on minor medical ailments
  • A fixed number of physiotherapy sessions per year (either online or in person)
  • A fixed number of counselling / cognitive behavioural therapy sessions per year (either online or in person)
  • 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.

Sick Pay Insurance For Employees

Sick Pay Insurance is for individuals only. However, if you’re a business who wants to provider cover for your employees, you could consider Group Income Protection.

Here, the business owns and pays for the scheme for the benefit of a group of workers. You’ll usually need between three and five staff to set up a group scheme.

sick pay insurance for employees

If an employee needs to claim, the insurer pays the benefit to the business. You as the employer then distribute this as a sick pay benefit to the employee in the same way you’d pay their wages, such as through PAYE.

Many insurers include valuable extras free with these policies. For example, you might get access to an Employee Assistance Programme or similar scheme, which can help manage your sickness absence and sick pay liability.

Compare Sick Pay Insurance Quotes and Get Expert Advice

We’re here to ensure you and your family don’t miss out on financial security because you didn’t have appropriate cover in place.

Given the complexities of taking out the best cover, particularly for the self employed, we recommend speaking to our team of experts. We’re here to provide you with fee-free advice to ensure you’re making an informed decision.

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 you are looking to protect your income or review your existing cover, simply give us a call on 02084327333 or email help@drewberry.co.uk.

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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