A friend is receiving statutory sick pay from his employer. My employer would commence SSP arrangements after 40 working days' absence. Having considered this carefully, I would prefer, both as an individual and as one of the management team at my employer, for more generous arrangements to be in place. What options are available to me as an individual and to my employer?
Basically, there are two options which are that you can either have an individual income replacement policy or your employer can implement a group scheme for the staff.
An individual policy would provide cover of up to 75 per cent of pre-disability earnings less state long-term incapacity benefit and any ongoing payments from other ill-health insurance policies where your illness has given rise to an accepted claim. This would include any contribution protection that you might have on your pension or any life insurance policies. Different calculations will apply to higher earners (typically in excess of £60,000 a year) and will vary by insurer. It is also possible to insure dividends.
A company scheme would also provide cover of up to 75 per cent of gross pre-disability earnings although schemes can also be set-up on a net-pay basis. Employer's National Insurance and pension contributions can be included.
If you take out an individual policy, then any benefit payments will be paid to you gross. No tax relief will be granted to you on the premiums. Benefits from a company scheme will initially be paid to the company and treated as a trading receipt. Payments then passed on to the employee will be subject to PAYE. The premiums paid by the employer will usually be allowed as a business expense although this can be different for premiums in respect of shareholding directors and, in such circumstances, clarification should be sought from the local tax inspector.
A combination of these two options whereby you take out an individual policy but your employer pays the premiums would result in tax-free benefits to you but the premiums paid would be treated as a P11d benefit and you would be taxed accordingly.
Definition of disability must be considered for either basis. I would recommend that this should be on an own-occupation basis, where payouts are made when you are unable through illness or accident to perform your own job, rather than an any-occupation basis.
You will also need to consider when benefit payments would be required. The deferred period could be at least eight weeks as during this period you would receive full pay from your employer.
The longer the deferred period, the cheaper the premium will be. To contain costs, you could also impose a limit as to how long benefit would be paid for. This might be particularly relevant if a company scheme was established. It is important to stress that different levels of cover could be provided for different categories of employee.
An individual policy would provide reassurance that your income was protected regardless of the sick pay arrangements, which can vary considerably from employer to employer. However, if a group scheme was established, then for an increased cost you could include a continuation option that would allow an employee to maintain cover with the insurer on an individual basis should they leave the employer.
Premiums on an individual basis would usually be more expensive than through a company scheme, which would also usually have the added benefit of providing a free cover limit, below which underwriting is not required on a group policy. This would not be available if you were applying for insurance privately.
Some insurers will also provide assistance to an employer and employee in the event of a claim by offering help with rehabilitation to facilitate the successful return to work of the employee. The involvement of health professionals can be extremely beneficial and speed up the recuperation process. In addition, solutions can be identified to ease the return to work, perhaps through adaptation of the working environment.
If a return to work was appropriate initially on a part-time basis, then the insurer would continue with proportionate payments in the meantime. Such assistance from experienced claims managers and health professionals can be invaluable to the employee and employer, particularly if the employer is inexperienced in managing such situations.
I would seriously recommend that strong consideration be given to the implementation of an insured income replacement or sick pay scheme.