Insuring your income in case of illness or injury.
Many people think that if they become unable to work due to illness or injury, their employer will help them out and continue to pay them until they can return to work.
However in reality the story may be very different to this.
Statutory sick pay should be paid by your employer if you are off work for at least four days in a row and you earn at least pounds 102 per week (pounds 5,304 per annum). The standard statutory sick pay is pounds 81.60 per week and can be paid for a maximum of 28 weeks.
Your employer may have a system in place where if you are unable to work, you will receive full pay for your first three months which then reduces to half pay for the next three months. However after this six month period, your employer may no longer want to keep you employed as they see no prospect of you returning to work.
If this happens, you would have to rely on any savings you had and any benefits from the state. This would come in the form of employment and support allowance which replaced incapacity benefit last year.
There is a 13 week assessment phase while a decision is made on your ability to work. During this assessment phase, a 25 year old would receive pounds 67.50 per week.
If the work capability assessment shows that your illness or disability does limit your ability to work you will be placed into one of two groups; the work related activity group or the support group.
If you are placed in the work-related activity group, you will be expected to take part in work-focused interviews with your personal adviser. You will get support to help you prepare for suitable work and you will receive a basic amount of pounds 94.25 per week in this category.
You will be placed in the support group if your illness or disability has a severe effect on your ability to work and you won't be expected to work.
You can work on a voluntary basis if you want to. You would receive a basic amount of pounds 99.85 per week in this category.
I shall now bombard you with some facts: sickness benefit costs Britain pounds 9 billion a year. Two million workers currently employed in the UK have had to take six months or more off work during their careers.
On average, UK workers could survive for just four weeks without full pay. As many as 31 per cent of people have had to take a month or more off work at some point in their careers.
So how can you ensure you have a comfortable income if you are unable to work? Income protection insurance pays you an income if you are unable to work for a set amount of time. You can choose your deferred period, usually ranging from four weeks to six months, and the maximum benefit you can have on an individual policy is usually up to 60 per cent of your salary.
The benefit is usually paid until you return to work or until normal retirement age. For a 40-year-old male with a standard office job, insuring a benefit of pounds 2,000, with a deferred period of six months, payable until age 65, this would cost pounds 34 per month.
You can choose your policy to pay out in the event that you cannot carry out your own occupation, or choose to pay out only if you can carry out any occupation.
The latter option would reduce your insurance premium.
If you are unsure of your sickness pay at work, ask your employer. This may also prompt them into thinking about putting some cover in place for your benefit.
An employer's income protection scheme may also provide access to rehabilitation services to give you the support you need to be able to return to work.
Many people have life assurance cover through their employer. However you are more likely to have to claim through being off work through illness rather than death.
Unum, a leading income protection provider, estimates that 11 per cent of people in their working lives will have to take six months or more off work due to illness or injury.
A much higher probability than having to claim on a life assurance policy. Self-employed individuals should be particularly aware of protecting their income as they do not have the comfort of an employer to pay them even the minimum statutory sick pay.
Trevor Law is a director with Merito Financial Services located near Solihull. E-mail: email@example.com