Which are the best private sick pay schemes?

What is sick pay and how does it work?

Sick pay is a type of benefit that is paid if you are unable to work due to illness, accident or an injury. Sick pay can refer to a number of different types of benefit, whether it be benefits provided by the government, your employer or even your own private sick pay scheme. We break down each type of sick pay benefit below:

What sick pay benefits am I entitled to?

Statutory Sick Pay (SSP)

Statutory Sick Pay is a benefit paid via your employer. The current benefit for the tax year from March 2023 (2023/24) is £109.40 and it can be claimed for up to 28 weeks. In order to claim you need to be ill for at least four consecutive working days and to qualify you must pay national insurance and tax and earn a minimum of £123 per week on average.

Employment Support Allowance (ESA)

If you are self-employed, you may be entitled to claim Employment Support Allowance. Additionally, you may be able to claim employment support allowance if you have previously been made unemployed but are unable to work due to illness or if you have exhausted your statutory sick pay entitlement. When you first make a claim you will be placed in the assessment category, a period that could last up to 13 weeks.

While your claim is being assessed you could receive:

• up to £67.20 a week (if you’re aged under 25)
• up to £84.80 a week (if you’re aged 25 or over)

After you have been assessed you could receive:

• up to £84.80 a week (if you’re placed in the work-related activity group)
• up to £129.50 a week (if you’re placed in the support group)

Employment support allowance is paid every two weeks.

Employer sick pay

If employed, your employer may offer you sick pay as part of your employee benefits package. The amount of sick pay you may receive varies from employer to employer. Some may offer none, whereas other employers offer very generous packages, paying up to 6 or even 12 months of full pay. Some employers offer sick pay benefits based on experience and so your benefits package may get better over time. You should always check what you are entitled to before looking into private sick pay schemes. Speak to the relevant contact in the human resources department and ask what sick pay benefits you are entitled to. Only once you know this can you start to understand whether you need to pay into a private sick pay scheme.

Private sick pay scheme for individuals

If you are ill and unable to work, Statutory Sick Pay is unlikely to provide enough money to cover all of your outgoings and so it is important to understand your options. Even if you are lucky enough to receive sick pay from your employer, benefits are usually limited to a couple of months at most and so a private sick pay scheme could be the answer.

We have provided a summary of the most popular types of sick pay scheme below:

Individual Income Protection scheme

Income protection is a comprehensive sick pay insurance policy that will start paying out a regular income if you are unable to work due to an accident, illness or injury. You can purchase an income protection policy privately or, if employed, your company may offer an income protection sick pay scheme that you could join. Importantly, income protection provides sick pay benefits right up until retirement (if selected) and premiums can be tailored to your individual needs. As this is the most comprehensive type of private sick pay scheme, it is the most expensive, however there are many ways that you can bring down the cost of the cover. The cost will depend on a number of factors including:

• the type of job you do
• how healthy you are
• how much cover you need
• how long you want cover for
• the waiting period before a claim is paid (deferred period)

Are individual income protection benefits taxed?

No, if you pay for your monthly income protection premiums from your net income then the benefits are paid out tax-free. If you are part of a group scheme and your premiums are either paid for by your work or are subsidised then tax may be payable, we explain more in the company income protection scheme section below.

Short term income protection scheme

This type of sick pay scheme works the same as income protection however the benefit payment period is restricted to either 1, 2 or 5 years. Premiums are cheaper than full income protection sick pay schemes as the potential total benefit you may receive is greatly reduced.

Company Income Protection scheme

Works the same as an individual income protection scheme, but your employer would offer the policy as an employee benefit. Sometimes referred to as a ‘Group income protection scheme‘, premiums can be cheaper overall as multiple people are covered under one policy. Some employers offer group income protection as a free benefit, whereas others may ask you to contribute towards the insurance cost. Check to see if your company offers a group income protection scheme before considering your own individual income protection insurance as it may work out cheaper. Often company private insurance schemes will include an employee assistance programme that can help staff return to work sooner after an illness or injury.

Are company income protection benefits taxed?

It depends. If you pay for the cover out of your net income then the benefits are paid out tax-free. If your employer pays the premiums in full, then it is classed as a taxable benefit and so any benefits are subject to tax. If you pay a portion of the premium, then the portion the employer pays on your behalf will be taxable. For example, if your employer pays 50% of the cost of your income protection policy, then 50% of the benefits will be taxed.

Accident & Sickness insurance

Accident and sickness insurance is another short-term sick pay scheme that will replace a portion of your income if you have an accident or are sick and cannot work. This type of insurance is usually purchased to cover mortgage repayments, bills or both. Accident & sickness insurance policies only cover up to around 50% of your gross income, whereas income protection policies can cover up to around 65-70%. Benefits are usually only paid for either 1 or 2 years and so is not a viable option for those looking for a long-term sick pay scheme.

How much sick pay insurance do I need?

It really depends on your individual circumstances, however, we have provided a simple 3 step guide below to help you understand whether you may need sick pay insurance:

1 – Will you receive any benefits if you are ill?

• Statutory Sick Pay will pay £109.40 per week for up to 28 weeks. You need to be employed and earn at least £123 per week on average
• If you are self-employed, Employment Support Allowance may pay up to a maximum of £129.50 per week (depending on individual circumstances).
• If you are employed, check to see how much sick pay you are entitled to

2 – Do you have any savings or emergency funds that you can use if you are ill?

If you have savings that you can access then you may decide you either do not need sick pay insurance or alternatively you may be able to reduce the amount of cover you need or perhaps increase the waiting period before it pays out (thus bringing down the cost)

3 – Do the maths

Once you know how much sick pay you are entitled to and whether you can access any savings, you can then proceed to work out how much cover you may need. Check out our table below which provides some useful examples.

Sick pay insurance examples

Below we provide some useful examples to demonstrate what type of sick pay insurance might be required and what deferred period to choose. We go into more detail about deferred periods and additional benefit options in our article ‘A guide to sick pay insurance'.

Sick pay benefits / Private sick pay insurance comparison

Below we've provided a table to demonstrate various sick pay benefits and the amount of sick pay insurance needed

Monthly Net Income	Employer sick pay	Statutory sick pay	Savings	Sick Pay insurance
£2,500	Full pay for 3 months	Equivalent to £474.07 per month. This is paid through your employer once employer sick pay stops. It is worked out by multiplying the weekly benefit of £109.40 by 52 and then divided by 12 to get the monthly average.	£6,000	Takes full income protection, deferred for 6 months (as employer sick pay, statutory sick pay and savings mean they can survive 6 months before sick pay insurance kicks in)
£2,000	Full pay for 1 month	Equivalent to £474.07 per month. This is paid through your employer once employer sick pay stops. It is worked out by multiplying the weekly benefit of £109.40 by 52 and then divided by 12 to get the monthly average.	£3,000	Takes full income protection, deferred for 3 months (as employer sick pay, statutory sick pay and savings mean they can survive 3 months before sick pay insurance kicks in)
£2,000	1 week full pay	Equivalent to £474.07 per month. This is paid through your employer once employer sick pay stops. It is worked out by multiplying the weekly benefit of £109.40 by 52 and then divided by 12 to get the monthly average.	£1,000	Takes full income protection, deferred for 1 month (as employer sick pay, statutory sick pay and savings mean they can survive only 1 month before sick pay insurance kicks in)

Who doesn't need to pay into a sick pay scheme?

Most people would benefit from having some kind of sick pay insurance, however, there are a few occasions when it may not be necessary to consider purchasing your own sick pay insurance and these are:

• if you receive sick pay insurance as an employee benefit through work
• if you have enough savings that will see you through until retirement
• if your employer pays you indefinitely while off sick

Which are the best private sick pay insurance schemes for individuals

It depends on what you define as ‘best'. For some, the best insurance is the one that is most likely to pay out, while for others, the best may be the most comprehensive policy. For example, you should look out for sick pay insurance that excludes claims for mental health or back pain as these tend to be the reason for most claims. Often the best way to ensure you are buying the best sick pay insurance is to speak to an independent sick pay insurance specialist*, as they will have access to the whole market and can provide advice and guidance.

Sick pay insurance is a complex product and by speaking to a specialist, not only will you be better informed, you'll receive assistance with completing the forms and even qualify for up to £100 cashback if you take out a policy. Simply complete this short* form to get started and you'll receive a callback at a time that suits you best.

The best private sick pay insurance schemes for businesses

If you are a business looking to find the best ‘group' sick pay scheme then I recommend that you speak toLifeSearch*. It can be difficult to compare the costs of employee benefits such as group life cover and income protection and so it is often better to speak to an independent specialist who can do the hard work for you. They are the experts when it comes to business protection and they can guide you through the whole process from the initial quote to policy set-up. Additionally, they will guide you through the tax breaks that your business can take advantage of. Simply click on the link above to get started.

 

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. The following 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 – LifeSearch