Some research conducted by the government’s Department of Work and Pensions not so very long ago found that around one million people call in sick from work every week. Whilst this in itself illustrates quite a high level of sickness absence in the UK, a further statistic gave perhaps even greater cause for concern. That is that of those one million people every week, 3,000 are unable to return to work after six months. For 3,000 people each week, therefore, that call into the office turns into an illness that is more serious and takes longer to resolve than just a few days off work. These are the circumstances in which sickness insurance really could help.
How could it help and what does it do? Sickness insurance takes a lot of the financial worries away from a prolonged absence from work because of an illness. If the policy holder is away for longer than a certain period of time – and is therefore increasingly likely to be losing income as a result – the insurance pays out a regular, tax-free monthly benefit that can be used as a replacement income, or to meet essential commitments, such as mortgage repayments or those on a personal loan or other borrowing. In other words, it can lift a major part of the burden of worrying about how the bills are going to be paid when the income from work runs out and frees the individual to concentrate on the important issues of getting back to full health.
In fact sickness insurance does even more than it suggests in its title. It extends cover not only to the loss of income as a result of illnesses but of physical accidents, too. If the policy holder needs to take time off work in order to recover from an accident, the insurance pays out in just the same way. Because the insurance covers “two for one” in this kind of way, it is usually said that it offers protection against an incapacity to work (whether that incapacity is caused by an accident or illness).
When the cover has been set up and the first of the monthly premiums paid, the policy holder can claim under the policy as soon as he or she has been off work – or incapacitated – for longer than the period prescribed in the policy’s terms and conditions. This “waiting” or “qualifying” period can typically be anything from 30 to 90 days – with most people, of course, being attracted to the shorter qualifying period since it is more likely to pay out for shorter absences from work and because the benefits become payable earlier. Policies differ in respect to the qualifying period, so it is important to find out what this is before settling for a particular policy.
What you receive in monthly benefits from sickness insurance of course depends on the level of cover you have chosen to buy. The monthly premiums you will need to pay are directly related to the level of cover offered, with premium rates now universally quoted in terms of each £100 of cover bought. The chosen amount, of course, is the amount you are guaranteed to receive each month in the event of a successful claim. There is a limit, of course, to the maximum amount that can be insured in this way and that is typically the equivalent of 50% of the policy holder’s normal gross salary from work, or £1,500 a month, whichever is less.
The chosen level of insured benefits are then paid out every month until the policy holder is well enough to return to work or after a typical maximum period of 12 months. This restriction to 12 months, together with the maximum limits on the amount of income that can be covered, is quite central to the whole concept of sickness insurance. The limits help to define the boundaries of the insurer’s potential liability and determine both the amount that is liable to be paid each month and the number of months for which it may need to be paid. Because the limits of liability are so clearly defined, the insurer is able to offer the insurance at a remarkably low price in terms of the premiums that need to be paid. The limits in fact work to the policy holder’s advantage, therefore.
Nevertheless, if 12 months seems too short a duration for recovery for some of the more serious illnesses that can keep an individual away from work, some policies offer the option of extending the maximum period of benefit payments to 24 months – although the premiums, of course, will be appreciably more expensive (for the reasons just given).
For those concerned about the truly more serious illnesses – perhaps those that are life-threatening or that can leave the victim unable to work again – then sickness insurance is probably not the most appropriate insurance. Instead, it could make more sense to consider products like critical or serious illness insurance, which pays out a single lump-sum benefit in the event of the policy holder being diagnosed with such a condition.
Sickness insurance, however, provides the ideal kind of cover for those instances where the illness is serious enough to incapacitate the individual for several months at a time, but where there is nonetheless every realistic prospect of resuming normal working before too long. We have seen that it is remarkably flexible in terms of the amounts of income that can be insured, but it is flexible, too, in the risks that can be covered. It has already been mentioned that sickness insurance automatically incorporates cover against incapacity as a result of an accident, but on payment of only a modestly priced increase in premiums, it is also possible to extend cover to the risk of redundancy, too. In other words, precisely the same level of benefits could be paid out each month, over the same maximum period of time, in the event of the policy holder being made compulsorily redundant.
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