Income protection: an alien idea
FINANCIAL ADVISER - 15TH OCTOBER 2002
Most of us will grow – that’s why people invest in pensions.
Most people also see the sense in taking out life cover, and insuring their house, car and other possessions. Increasing number of people also invest in insurance to pay for private medical cover for themselves and even their pets. A few even insure against being abducted by aliens or transformed into a werewolf. Why, then, do so few people insure their income and their life style.
About 11% of Britain’s working population has income protection, or permanent health insurance or PHI as it is also confusingly called. Of those, about half are covered by their employer and the remainder have insured themselves.
Less than half of income protection cover is sold through intermediaries, with the remainder purchased direct from providers. The statistics make it clear that income protection is a sensible investment for those who work full time. Figures from the Department of Social Security show that in 1996, 2m people were off sick for more than six months – and of those, 1.5 million had been off work for more than two years.
However, in 1995only 107,000 people aged between 20 and 64 died. In any one year, an adult from the working population is 19 times more likely to be off work for six months or more than to die. Most people are not well informed about the benefits they are likely to receive if they are off sick.
Research carried out for Norwich Union Healthcare showed that one in four employees believed that state would support them if they were unable to work through illness and two out of three did not really know what the difference between critical illness cover – which pays out a lump sum on diagnosis of a specified major illness – and income protection, which pays a regular income as long as the policyholder is unable to work due to any health problems.
Research among employers shows that only 6% offer income protection to their staff. More than half of employers offered no benefits at all and 43 % felt that they should not be obliged to offer benefits.
The need to income protection might seem to be clearest among the self employed. Yet although for them illness was the second biggest worry after losing their professional reputation and four out of five take no time off when they are ill, only one in three self-employed people had and income protection policy.
One of the more illuminating ways to find out about the benefits on offer to those who are off work is to trawl through the Benefits Agency pages on the Department of Health web site.
The site is very clear and lists every benefit on offer, together with details of eligibility, taxation rules and current rates.
Of course it would be possible to clock up a considerable amount of Internet time checking out every single benefit available to those who are sick – finding out, for example, whether you might be able to claim under the Workmen’s Compensation (Supplementation) Scheme (answer almost certainly not, as it is only available to those who had an industrial injury or disease related to work before 5th July 1948 or earnings Top up (answer, possibly if you live in one of the parts of the UK which is piloting the scheme).
However, the basic benefits are fairly straightforward. Your employer must pay your Statutory Sickness Benefit once you have been ill for four or more calendar days in a row. The current weekly rate is £57.50, payable for up to 28 weeks (six months). After that, you switch to Incapacity Benefit, for which you must pass the “all work” test’ the DSS has to be sure that you are not fit for any work at all.
