What is illness insurance?
Illness insurance protects your income if you are unable to work because of an accident, long-term ill health or disability.There are several different kinds of illness insurance. Some pay out a single lump sum, some will pay out a regular monthly income, while others will cover payments for specific things, such as your mortgage or credit card payments.On this page we explain why you might want to think about taking out illness insurance. You can find out about the different types of illness insurance available, some of the benefits they provide and what you need to think about before taking out one of these types of policy
Why take out illness insurance
If you can’t work because of illness, accident or a disability, you may be able to get state benefits or sick pay from your employer if you’re unable to work. However, these may not cover all your needs.You might find relying on state benefits or sick pay alone would leave you with a much lower standard of living than you are currently used to. You might also find that you don’t have enough money to pay off any loans you may have taken out or to keep up the re-payments on your mortgage. You could find yourself falling into debt and could lose your home, be taken to court by people you owe money to or even be made bankrupt.
Even if you can get state benefits or sick pay from your employer, it might be worth thinking about taking out one or more of the types of illness insurance as well, to boost your income. However, most types of illness insurance do have drawbacks and limitations which you need to look out for.
State benefits
State benefits such as Statutory Sick Pay (SSP) and Employment and Support Allowance (ESA) pay a very low rate of income. There are other restrictions too. SSP only pays out for a limited period of time, while for ESA you may have to undergo regular medical assessments and it can be stopped if you don’t pass them.It’s worth checking how much money you would get if you had to rely only on state benefits and comparing this with how much you think you would need to live on.
To get an estimate of how much benefit you might get, use the
Benefits Adviser on the Directgov website at: www.direct.gov.uk.
Employer’s sick pay and pension
Your employer may pay you Contractual Sick Pay. This is also called enhanced sick pay and it means that you would get all or part of your regular salary for a set period of time if you can’t work. Contractual Sick Pay can be paid at a lower rate than your normal pay.Some firms will also pay your pension early if you have to retire early through ill-health, although the amount you get might be less than if you had worked to retirement.
If you’re not sure about what benefits you’re entitled to from your employer if you are unable to work through ill-health, you should ask them for details.
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