Many of us will be ill at some time in our working lives. Usually this may be no more than a few days at a time, but for some, illness can be more serious and prolonged. Employees, under UK employment law, are entitled to statutory sick pay if they are ill for more than 3 days in a row.
The rate of sick pay that an employer pays must be at least £89.35 per week and must last for up to 28 weeks or until the employee is back to work. For the vast majority of employees, £89.35 per week will not be enough to cover the monthly commitments and in many cases may not even be enough to cover the mortgage payments.
Recent research by the charity Shelter, revealed that 37% of families are one missing paycheque away from losing their homes. The Insurance industry has come up with a solution for this in the form of Income Protection Insurance, or Permanent Health Insurance, as it is sometimes known. In most cases it is possible to insure around 50% of income so that in the event of long term illness, the insurance policy pays out half of the usual salary until the policyholder gets back to work.
These policies usually have a deferred period of at least 4 weeks. This means that they only pay out if the policyholder is ill for more than 4 weeks. Some policies can have longer deferred periods, even up to 12 months which makes the cost of these policies considerably cheaper.
It is odd and slightly worrying that more people have their mobile phones insured than have themselves insured in the event of being unable to work in the event of illness!
Some employers have more generous sick schemes than the statutory minimum. Many public sector jobs benefit from up to 6 months full pay followed by 6 months half pay before the cover stops and the hardship begins. Private sector employees would rarely have cover through work of anywhere near this and are taking a big gamble on their health if they are not properly insured.
David Hill is a Chartered Financial Planner and Independent Financial Adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814, email firstname.lastname@example.org or see www.hillsfinancialplanning.co.uk