You may not have put much thought into what will happen if you get sick or injured and are unable to work. After all, you’re employed and your employer has to cover you with sick pay. But is your sick pay really sufficient to cover your outgoings and how long will you receive it for? What happens if you’re unable to work for a prolonged period and your sick pay runs out in the meantime?
This brings you to the question, ‘Do you need income protection if you have sick pay from your employer?’ Sick pay is unlikely to stretch as far as you may expect. Income protection, therefore, is a good way to bridge the gap when you are off work for longer than expected.
The limitations of sick pay
Not all employers pay the same amount of sick pay, with some being more generous than others. As an employee, you’re entitled to statutory sick pay (SSP) and many employers provide additional sick pay as part of your employment package.
Statutory sick pay (SSP)
Statutory sick pay is the legal minimum amount an employer must pay you if you’re too ill to work. The current SSP allowance is £123.25 per week and this is paid for up to 28 weeks as long as you meet the eligibility criteria.
It’s payable for each full day that you are off sick but would normally have worked. Payments are made by your employer in the same manner as your normal wages, such as weekly or monthly. Deductions are still made for tax and National Insurance.
Occupational sick pay
If your employer has their own occupational scheme, you can benefit from additional sick pay to the SSP that’s payable. The amount employers pay and for how long varies.
For example, they may offer your full pay for an initial period and then reduce this to half pay for a further period before ending the payments. Some employers may base the amount on how long you’ve worked for them while others may base it on your job grade, the length of your sickness absence or the type of illness or personal situation that you have.
It’s important to check your employment contract so that you know exactly what type of financial help you can receive if needed.
Do you need income protection if you have sick pay from your employer?
As you can see from the details above, statutory sick pay alone doesn’t provide you with much cover. The low amount paid is unlikely to match your normal take-home pay, leaving you short when it comes to covering your living expenses. It’s also paid for a limited period and if your recovery lasts longer than this, you could find yourself in financial difficulties.
Even if you’re lucky enough to receive extra financial support from your employer, this can be limited, depending on their conditions. That’s where income protection comes in. It can prove invaluable at a time when you need to concentrate on your recovery rather than how you’re going to pay your bills.
A financial safeguard
This type of insurance provides you with a regular monthly income when an illness or injury prevents you from working. You usually receive between 50% and 70% of your salary, enabling you to continue making your mortgage payments and covering other monthly bills.
Depending on the level of cover you choose, you can receive income protection payments for a set period, until you return to work, until you retire, up to the end of the policy term or even until you pass away.
Deferred period
Income protection payments are not made by the insurance provider immediately. Instead, there’s a pre-agreed waiting period, which enables you to use other funds first, such as your employer’s sick pay or savings you may wish to use. This helps you to save on insurance premiums.
If you’re relying on SSP, it’s unlikely that you’ll be able to manage financially for very long. Therefore, a short waiting period, such as a few weeks, will be better for you. If you receive additional sick pay from your employer, it makes sense to wait until their payments end before your income protection payments begin.
You may have savings that you want to use but be careful of how quickly your pot dwindles when using your savings to cover your normal bills. It’s a good idea to set a limit, then arrange for the income protection payments to begin once that has been reached.
Is income protection right for you?
Your situation is different from anyone else’s so you need to weigh up your circumstances carefully to decide whether or not you need income protection. Here are some questions to consider:
- What sick pay are you entitled to? Just SSP or additional sick pay from your employer?
- How long will the sick pay last and will it be sufficient to cover your bills?
- Do you have savings and are they adequate to cover your mortgage and other bills for a short term?
- Are you the main earner in your household or could your partner’s income cover the household expenses when you’re not working?
- Do you have dependents to support?
- Do you prefer to have cover for a wide range of illnesses and injuries?
- Does your employer already provide income protection insurance for you as a benefit?
- Can you get financial help from your family?
Plan ahead to protect your income
You never know what’s around the corner and income protection can provide vital financial security if an illness or injury renders you unable to work. Think of it as a long-term safety net, giving you peace of mind that your financial commitments can still be met should the unexpected happen.
Our mortgage and protection brokers are here to talk through your circumstances and the type of financial protection you’re looking for. They can compare the policies available and tailor your plan to meet your specific needs. Give us a call on 01322 907 000 and put financial support in place for the future.