Who pays the bills if you are long-term sick?

A question we are often asked is – “ I have just found out that if I am off sick from work, my employer will only give me statutory sick pay (SSP) of up to £85.85 a week. I have some savings that I can fall back on for the short term but how can I ensure that I have sufficient income to pay my bills, thereafter, if I am unable to return to work?”

The answer is simple, you need to take out something called income protection insurance, sometimes called permanent health insurance (PHI).

This is an important form of insurance because it protects the one thing that pays for everything else in your life - your income. It will also ensure that regular pension contributions can still be made during the period you are off work, providing greater financial security in retirement.

You are three times more likely to go on long-term sick leave than you are to die during your working life. While lots of us have life insurance to protect our dependents financially if we die, only one in ten of us has income protection insurance.

Income protection pays up to 60 per cent of your pre-illness income. It normally begins to pay-out after a deferred period and continues to do so until you are either able to return to work, or until you retire. The income payable is tax-free and the maximum income is restricted to give you an incentive to return to work. It can cover income from employment and self-employment, including dividend income.

The premium you pay will depend upon a number of factors including your age, sex, occupation, level of cover, whether the cover is level or index-linked, the term of the policy and the length of the deferred period selected.

Another important factor that will affect the premium payable is whether the policy covers your own occupation, any suited occupation or any occupation. An “own occupation” policy provides the most comprehensive and clear-cut form of cover but this might not always be possible as some very risky occupations cannot qualify for this definition. If you suffer from any existing conditions these may also be excluded from the policy. It is fair to say that the more hazardous your occupation, the higher premium you will have to pay.

There are two different premium structures available. Guaranteed premiums, as the name suggests, guarantee that the regular premiums will never increase once the plan is in force. Reviewable premiums may initially be set at a lower level but are not guaranteed and can rise in the future, but depends on the insurer’s claims experience.

Income protection insurance is a valuable but underused form of insurance and one that more people should seriously consider taking out. To find out the correct level of cover for you and to obtain a quote for the lowest premium, please call us and we will be happy to advise.

Please also remember that due to the European Gender Directive, some insurance premiums will be increasing by up to 30% in December (see our blog of 31/05/2012). So, with underwriting possibly taking up to 3 months to complete, you will need to apply in the next month to ensure you don’t miss the deadline!