Sickness Insurance

What is sickness insurance?

Sickness insurance is a form of insurance that keeps money coming in if you're unable to work because of sickness. If you claim, it pays out a percentage of your take-home salary for a specified time period. This can range until the policyholder's retirement or death, to their return to work or even for a shorter length. The latter obviously comes at a lower cost.

Who needs sickness insurance?

A lot of people assume sickness insurance is dispensable because they have other policies in place that sound similar. However, private medical insurance and payment protection insurance are not the same and should not been seen as like-for-like substitutes. PPI, which is rarely out of the news, only covers a particular debt. This means insurance payouts go to your lender to keep up repayments. With sickness insurance, however, how you spend the money is up to you. Payouts are usually based on a percentage of your wage: 50% to 70% is the norm and these payments are tax-free.

When should I start thinking about a sickness insurance policy?

If you're a working adult, sickness insurance ranks among the must-have insurances. Despite this, many people remain uncovered in the UK. According to statistics from Unum and Personnel Today, just 12% of workers are supported financially by their employers when on sick leave. Yet sickness insurance still ranks below life insurance and private medical insurance as policies the general public report to have in place.

Where should I get sickness insurance from?

There are many providers of short term sickness insurance and other products designed to protect you against loss of income. Most offer their customers the flexibility to set a 'deferral' period. This means the policy only pays out once a pre-agreed period has passed, usually ranging from one to 12 months after a claim is made. The longer the deferral period, the lower the monthly premium. The default deferral period tends to be 30 to 90 days.

It's worth noting that if you go off work due to any of the following, you may not be covered by your income protection policy:

• A medical condition you have suffered from / seen a doctor about in the past 2 years
• Normal pregnancy
• Back ache – without x ray evidence
• Excess consumption of alcohol
• Use of illegal drugs
• Certain dangerous pastimes such as rock climbing, parachuting or motor racing.

Also, providers will rarely pay out if you become unable to work due to sickness within 30 days of your policy start date.

How can I find out more information about sickness insurance?

With so much choice of sickness insurance policies and providers, getting impartial advice to inform your decision is invaluable. The Money Advice Service is a good place to start. It offers free and unbiased information on both sickness insurance cover and cost. Set up by the government, you can access their tips and tools on their website, by phone, in printed guides or by visiting an adviser in person (they have a network throughout the UK).