One of my colleagues suffered a heart attack last July and after six months our employer terminated his employment contract. Neither he nor our employer had any insurance against ill health.
My previous employer did and pay continued until recovery and return to work. Can I do something about this myself?
Yes, you can do something. Just like your previous employer, you can insure against the risk of being off work due to illness or disability. This is known as income-protection insurance although, historically, it was referred to as permanent health insurance, a very clumsy title for it.
Income-replacement insurance does exactly what it says, it replaces income until you are able to return to work, you reach retirement age or you die. It may not replace all of your income but it can replace sufficient to ensure that you are both able to pay the bills and maintain a certain standard of living.
Usually, the insurance company will offer a maximum level of cover which will be set at such a level that there is not a disincentive for a claimant to return to work. After all, if you were receiving sufficient income to maintain living standards and you did not actually have to go to work, some might not recover as quickly as one might expect.
The maximum cover will therefore depend upon your earnings and your entitlement to claim benefits from the state. The combination of state benefits and income replacement cover usually amounts to somewhere in the order of about 60 per cent of your gross pay.
How quickly a benefit becomes payable depends upon you. The sooner the benefit comes into payment, the more expensive the cover will be.
Your policy will have what is known as a waiting or deferred period, which is the time during which the insurer will not pay you any income. The range of these waiting periods starts as low as four weeks and can be as long as two years.
What you will have to do is find out from your employer exactly how long he will continue to pay your income and then dovetail in the waiting period on your policy.
There are a number of different ways in which the insurer might set the premium on your policy. Some plans have a reviewable premium, the future level of which depends upon the claims' history the provider experiences.
The problem with these types of plans are that the future premiums might increase quite dramatically and you may not be able to afford the cover or you may have to scale it down significantly.
It is better, in my experience, to go for a guaranteed-premium plan where the cover remains as long as the premium is paid and the insurer cannot remove it.
It is from this type of plan that the word permanent comes in the old-fashioned title for this type of cover.
You will also have to make sure that the policy you buy protects your income in the event of you being unable to do your job rather than any type of work. The definition of cover you should look for is that of own occupation rather than any occupation.
It might be the case, for example, that a highly skilled person, by virtue of illness or disability, is unable to do his job but could still take on an administrative role.
Women pay more for this type of cover than men. This is perfectly fair because they are more morbid than men. That may sound rude but it isn't meant to be. Morbidity is the propensity to be ill and statistically that is the case. While women tend to live longer than men, they do have a greater number of illnesses on average.
You should also consider the long-term effects of inflation. Not only does it make sense to set the cover at the right level but ensure that it increases each year and also increases during the period of a claim. You might want to link such increases to the retail price index or at a fixed rate. Either way, you should expect to pay more for this increasing cover.
You will also want to select an insurance company with a good record of paying claims. With many ailments it is possible to – dare I say it – fake the problem. Some product providers are more generous in their approach to claims – almost a case of seeking reasons to pay the claim rather than to avoid paying. Watch out, however, as pre-existing conditions may be excluded under the policy.
It sounds to me as if you should be considering income-replacement insurance as, clearly, this is not a priority for your employer.