If you were to become ill or injured and unable to work, do you know how you would continue to pay your essential outgoings and maintain your standard of living? It's not something nice to think about, but it's really important we do. There are various options with protection insurance and it can be confusing, talk to one of our experts to make sense of it all.


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What Is Sick Pay Insurance?

Sick Pay Insurance protects your income in the event you are unable to work due to an accident, illness or disability. It provides a percentage of your gross monthly earnings, up to 70% as a tax-free monthly payment. Sick Pay Insurance is also known as Accident & Sickness Insurance or Income Protection.

According to the UK’s consumer champion Which? Income Protection is ‘the one protection product every working UK adult should consider buying’. It can be used to pay all your essential outgoings which your income would normally cover, such as your mortgage or rent, your utility bills and day to day living costs such as food.

Who Needs Sick Pay Insurance?

In short, anyone who could not continue to pay their bills indefinitely as a result of illness, should consider Sick Pay Insurance. It doesn’t matter if you have children or other dependants, if you don’t have savings or sick pay to rely on, Sick Pay Insurance can act as an alternative safety net. It is particularly relevant for those who are self-employed, or are employed but don’t have sick pay from their employer to rely on.

How Does It Work?

Assuming you choose a policy with the ‘own occupation definition’, ie that covers you for your own occupation, your insurer will cover any health condition which stops you being able to fulfil your own specific job requirements.

All policies will have a ‘waiting period’, which is a predefined amount of time you will have to be off work, before the policy begins to pay out. At the point of taking out the policy, you can select a waiting period to suit your needs. Advisers can take into account any savings or sick pay benefits available from your employer, to calculate the right amount of waiting period for you. Waiting periods can be set for as short as one week.

Once the waiting period has passed, the insurers would pay out your chosen monthly amount, while you are unable to do your job. Assuming you have opted for long term cover, the policy would continue to provide the monthly payment until you are able to return to work, or if you are never fit to return to work, it would continue to pay out until your chosen retirement date.

You can set the claim period for the policy at the outset, either as a fully comprehensive policy with long term cover as just described, or, if you wanted to reduce your premiums, you can set the claim period to have a limit, for example 2 or 5 years.

Do I Really Need it?

The first thing to understand when considering if you need Sick Pay Insurance, is what your individual situation would look like if you were to become too ill to work. Do you have Occupational Sick Pay and if so how much? Do you know how much Statutory Sick Pay is? And how much savings do you have to fall back on?

  • ‘Each year one million workers suddenly find themselves unable to work due to serious illness or injury’ (Welfare Reform for the 21st Century)
  • Yet according to the Department for Work and Pensions Family Resources Survey, around 54% of households have either no savings or less than £1,500 savings and 76% have less than £10,000
  • According to sick pay statistics in a government Health In The Workplace report: only 42% of small organisation employers offer any Occupational Sick Pay, which means the remainder would be left with Statutory Sick Pay (SSP)
  • This means employers would pay you £95.85 a week after the initial four days of illness, up to 28 weeks.
  • After the 28 week period – when SSP ends – if you are still unable to work – assuming you have paid National Insurance for two years or more – you are eligible to claim contributory Employment and Support Allowance (ESA) which is even less than SSP.

What Does it Cover?                                                                            

Unlike a Critical Illness policy, there isn’t a specific list of injuries or illnesses that a Sick Pay Insurance policy covers. If you are unable to do your job because of illness or injury, then you should be able to claim on the insurance. This could be because of a broken leg, a sports injury, a mental illness, an operation, a back problem etc.

Some figures on claims from the Association of British Insurers:

  • Cancer is the biggest single reason for an individual critical illness claims with musculoskeletal the biggest reason for individual income protection, followed by mental health and then cancer
  • £60.5 million was paid out in Individual Income Protection claims for mental health with an average claim of £15,728

What Does it Not Cover?

As long as you are completely honest with your adviser and there is nothing left un-disclosed when you take out the policy, there shouldn’t be any reason why it doesn’t pay out when you most need it. However, as with all insurance policies, there will be some exclusions which apply to anyone. These are likely to include injuries or illnesses caused:

  • As a result of travel to areas where travel is advised against by the Foreign and Commonwealth Office because of conflict, high terrorism risk etc
  • As a result of criminal activities
  • As a result of substance or alcohol misuse

If you have suffered from a medical condition previously, this could also be excluded from your policy. Each insurer has their own individual stance on how they will handle your circumstances, but if you have an existing condition, you can expect this to be reflected in the policy. This could be that you have to pay an additional premium to cover the condition, alternatively the condition could be excluded completely, or some insurers may be happy to cover the condition completely, with no additional charge. It depends upon each insurer’s appetite for risk as well as your individual circumstances. It is especially important to seek professional advice in this instance to make sure you have the best value and the most complete cover.

Sick Pay Insurance only covers you if you are unable to work due to medical reasons, it does not cover you if you are made redundant. There are policies available which cover for unemployment as well, but a Sick Pay Insurance policy would not.

How Much Does Sick Pay Insurance Cost?

There are a number of factors which affect the cost of Sick Pay Insurance. Some are your choice, depending on the level of cover you require and the budget you have, the rest relate to your circumstances, which are not so easy to change.

Your Circumstances which affect premiums:

  • Your health
  • Your age
  • If you smoke
  • Your occupation

Your choices which can affect premiums:

  • Amount of cover (the monthly pay out amount)
  • The waiting period (from when you become ill, to when you can claim)
  • Which insurer you choose
  • If you choose guaranteed or reviewable premiums

Some indicative example quotes:

Example 1

  • 25 year old Architect
  • looking for a £1500 per month pay out amount
  • with a three month waiting period
  • full policy (meaning it will pay out until you return to work/retire)
  • £18.89 per month premium

Example 2

  • 45 year old Architect
  • looking for a £1500 per month pay out
  • with a three month waiting period
  • full policy (meaning it will pay out until you return to work/retire)
  • £40.07 per month premium

What Are the Alternatives?

Assuming you do not have unlimited Sick Pay benefits from your employer, personal savings or state welfare would be the alternative to Sick Pay Insurance, to cover the gaps in lost income.


Findings from a Scottish Widows (2014) ‘Savings Report 2014’ found that 42% of households could survive only a couple of months on their savings and only 26% could survive one year or more. Whilst savings could be a viable option for some in the short term, realistically there are few who could manage to save sufficient amounts to secure sufficient income replacement long-term. Especially if you consider for example an average 30 year old is likely to need in the region of £500,000 to last until retirement.

State Welfare

One of the most cited reasons for the uptake of Sick Pay Insurance not being greater, is the general assumption that either your employer or the state will be there to support you if you were unable to earn due to illness. According to ABI ‘Welfare Reform for the 21st Century’ paper; ‘The UK welfare system is based on a fundamentally flawed assumption that households that will get little or no support from the state recognise this, and act to put in place their own safety net’.

Understanding the level of support you would receive from the state is confusing for some, impenetrable for others. It is affected by a number of factors including:

  • Previous earnings
  • Children
  • Home owner (including with mortgage) or renting
  • Other household earnings
  • Household savings

This confusion can lead to people not understanding the level of support they would receive, which can be significantly less than previous earnings.


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