Sick pay insurance - often referred to as Income Protection - can be a little more complex than you first think. There are many parameters to consider such as the sick pay benefit, the policy term and the deferred period to name just a few. So long as you fully understand the parameters of the policy and tweak them to suit you, you'll avoid disappointment if you ever have to make a claim on the policy.
In this article, I will explain how one of the most complicated parameters of a sick pay insurance policy works - the occupation incapacity definition. The occupation incapacity definition stated within your income protection insurance policy can be the difference between a declined and successful claim so it is extremely important that you've shopped around for the best one.
What is sick pay insurance?
Sick pay insurance - more commonly referred to as Income Protection - provides you with a replacement income in case you become unable to work through illness or injury. It is a type of personal insurance policy that protects you against the financial hardship caused by loss of earnings and can bridge the gap between state sick pay benefits and your normal cost of living. Long-term policies can provide an income until you are able to return to work and cheaper, short-term income protection can provide 1, 2 or 5 years' worth of income to get you through a difficult time.
How does sick pay insurance work?
Sick pay insurance is built using a few parameters of cover to ensure that you can tailor your sick pay benefit to your needs and your budget.
Sick pay options
- Amount of sick pay benefit - you can choose to insure up to 70% of your gross earnings
- Term of insurance - this is how long you will be insured for (usually your working life)
- Deferred period / Waiting time - the number of weeks or months you will wait to receive your sick pay benefit
- Benefit period - the maximum time that each individual claim will pay for
For more information on the parameters of sick pay insurance and how they impact the cost of the cover, check out our "Sick pay insurance guide"
What are the different occupation incapacity definitions applied to sick pay insurance?
Occupation classes are determined through your job title, the functions of your daily work tasks and your workplace environment. They are a way of determining the criteria that you will need to satisfy for the policy to pay out if you become incapacitated to work.
Incapacity definitions can often be buried in the terms and conditions of your sick pay insurance making it difficult to readily understand the level of your cover.
Each definition is determined by what you need to be able to do in order to fulfil the functions of your job role. Normally this will include the split between your manual and clerical tasks as well as other risk factors. The more manual or risky your occupation is, the harder it is to arrange your income protection insurance to cover your own job. That being said, there are specialist income protection insurance companies that offer better occupation definitions to manual workers and others who might carry out hazardous jobs.
If your sick pay insurance policy schedule defines your occupation as "Own occupation" you will be able to claim the benefit paid by your policy as long as you are unable to do your own job. For almost all people, this is what you expect from a sick pay insurance policy.
The own occupation definition is the best definition and wherever possible, you should try to ensure that your sick pay insurance policy states this definition.
A "Suited occupation" definition on your sick pay insurance policy indicates that you are covered if you become unable to do either your job or a job that you are suited to by education, training or experience.
The suited occupation definition is not as desirable as an "own occupation' definition. Still, it limits an insurance company from suggesting that you could do a job that has no connection to your experience or training.
The "any occupation" definition is exactly as it says - your sick pay insurance will only pay a claim if you cannot do any job. It is not a desirable definition as you would only be able to claim against your policy if you were unable to do any job that you were medically fit to do.
Activities of daily work/living
Some sick pay insurance policies might detail your occupation class as "Activities of daily work or living". This definition means that you will be able to claim if you are unable to perform a certain number of specific activities that are linked to work or living tasks.
A house person who buys income protection cover may be assigned an "activities of daily living" definition to determine when a claim can be made.
Each insurance company has its own definitions, but activities of daily work and living can usually be described as:
Activities of daily work
- Getting in and out of a car
Activities of daily living
- Washing yourself
- Dressing yourself
- Climbing a set of stairs
- Walking a certain distance
- Making financial decisions independently
How to make sure that your income protection policy will pay out when you need it
If you are about to buy an income protection policy or if you already have one for that matter, it is extremely important to check that you have the best occupation definition. Without this, you may be left disappointed when the policy doesn't pay out as you expected.
When buying income protection insurance most people expect it to pay out if they are signed off work by their doctor, much like Statutory Sick Pay (SSP). They are motivated by the need to make sure that they have the means to meet their financial commitments. If you were to suddenly find that your insurance company believes that, although you can't do your own job, you can do another, you wouldn't be impressed.
All income protection policy schedules and quotations should detail the definition of incapacity that must be met for a claim to be paid. If you are unclear, you should call the insurance company and ask them.
Wherever possible, you should try to buy an income protection policy that covers you on an "own occupation" definition.
Different insurance companies offer different definitions for the same occupations and some insurance companies are much better at protecting people who work in manual or risky occupations providing a greater level of cover. These companies may not appear on comparison sites because they are often specialist insurers. Even more frustrating is that most comparison sites will not ask you enough information about your occupation to present you with accurate solutions.
The best way to buy an income protection policy that will provide you with an 'own occupation' definition is to speak to a specialist income protection adviser*. They will take all of your occupational information and search the whole market for the best definition and price on your behalf.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. This link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article