Protection insurance can be a valuable safety net for you or your family, should you become ill or die. However, you may find you already have valuable cover in place as part of your work place benefits or through the state benefit system.
It’s always a good idea to check if your employer provides you with some cover.
Find out what workplace benefits you have by looking at your employment contract or offer letter pension documents. Typically these might include death in service (life assurance cover), critical illness cover, private health insurance or income protection (if you’re ill and unable to work).
If you’re still not sure, speak to your organisation’s HR department.
You may also find your workplace benefits entitle you to discounted shopping or services at reduced cost with selected suppliers.
Employers are able to put in place group insurance schemes covering all employees which give preferential terms due to economies of scale. This means the cost of providing equivalent cover is less than an employee would have to pay if buying insurance cover personally and often with more comprehensive protection.
There are several types of protection cover and benefits which your employer might offer and we’ve put together a list of the most common group insured arrangements.
Private medical insurance
Some organisations provide their employees with private medical insurance.
This means that if you become ill, you will be able to access private medical care, as an alternative to using the NHS. In some cases this may be quicker or more convenient.
The cost of providing private medical cover is treated as a benefit in kind for tax purposes so you will have to pay tax on the equivalent value of your private medical insurance premiums. However, company schemes are significantly cheaper than what’s available in the market and often include cover for pre-existing conditions, which is typically excluded if you buy this type of policy yourself.
Life insurance (often called death in service)
This type of insurance will typically provide a lump sum payment to your beneficiaries, should you die.
As well as the type of policy you have the monthly premium you pay will be dependent on your age, health, lifestyle and how much cover you need.
This type of insurance will provide a lump sum payment to your beneficiaries, should you die while in employment. The amount of cover is usually a multiple of your annual salary, such as 2 x or 4x salary.
This is often very valuable employee cover as group schemes are not medically underwritten, so people with pre-existing health issues will usually be covered automatically.
The cost of this cover is paid by the employer and this benefit is not treated as a benefit in kind for tax purposes – so there is no extra tax to pay on the cost.
You can complete a Death Benefit Nomination form, or Expression of Wishes form, to nominate who you wish the life assurance benefit to go to if you die. This is very important as typically the proceeds can avoid any potential Inheritance Tax liability on death if the proceeds are paid direct to the beneficiaries rather than paid in to your estate.
If you buy life assurance yourself the premiums will be higher and cover is subject to medical underwriting so may have exclusions or a rate increase depending on your health and lifestyle. An advantage of having a personal life assurance policy is that it is not subject to you remaining in employment. Typically, these policies are for life.
Group income protection
This type of policy will pay out a percentage of your salary should you become unable to work due to accident or an illness.
You can get this type of insurance independently, however, it is often cheaper to buy it through your employer.
If you are unable to work due to accident or illness , the group income protection insurer will pay an arranged sum to your employer who will in turn pay it to you. This is typically a percentage of your scheme salary, such as say 60% of pre-illness earnings.
It’s worth noting that tax and National Insurance are deducted from group income protection payments by your employer in the same way as normal earnings, unlike individual income protection if you decided to buy this cover personally.
Importantly the cost of this benefit from an employer is not treated as a benefit in kind and therefore does not have any tax implications on the cost paid by the employer for your benefit.
Critical illness cover
Critical illness cover pays out a lump sum to employees affected by certain medical conditions.
The conditions that would result in lump sum payment are pre-determined by the insurance provider.
For example, you might find that the policy covers a stroke, but not skin cancer.
This is a less common employer benefit for employees but may be included as part of a group life scheme. If you buy the cover yourself it is important to check out the small print to know exactly what is covered and what is not covered.
Although you have no legal right to contractual sick pay from your employer, you might find that your work contract includes some cover for when you’re unwell.
The extent of any protection is up to your employer, so it’s worth having a look to find out what you’re entitled to. Typically this might include full pay for a specified period followed by reduced pay before ceasing.
This is not the same as Statutory Sick Pay (see below).
Although the state might provide you or your family with some financial support, the amount provided could be much less than you would expect.
In certain circumstances the state will provide you or your family with financial support when something goes wrong.
Common benefits you might receive include:
- Support Allowance
- Jobseeker’s Allowance
- Personal Independence Payment.
Statutory Sick Pay
If you become ill and are unable to work, your employer will provide you with sick pay.
The standard rate for Statutory Sick Pay is £96.35 per week and will be paid out by your employer for up to 28 weeks.
There are a number of criteria which you will need to fulfil to qualify for Statutory Sick Pay, which you can find on the Government’s dedicated guide.
Personal Independence Payment
This benefit provides financial support to cover the costs of long-term ill-health or disability. PIP is made up of 2 components (parts) called daily living and mobility, and each can be paid at either a standard or enhanced rate.
The daily living rate is for the extra help you need with everyday tasks. This can include preparing food, washing, getting dressed or communicating with other people.
The mobility rate is for the extra help you need getting around. This can include moving, planning a journey or following a route.
Payments range from £23.70 to £152.15 a week and are dependent on how your condition affects you, not the condition itself.
Employment and Support Allowance
Employment and Support Allowance provides financial help to those unable to work due to illness or disability.
In order to find out what you’re entitled to, you’ll have to attend a Work Capability Assessment to determine to what extent your illness or disability affects your capacity to work.
You will usually be paid an initial assessment rate while you wait for your Work Capability Assessment.
If you qualify for ESA, payments will depend on how much support you need and range between £74.70 and £114.10. You might be entitled to extra payments if you have severe needs.
If you lose your job, you can get in touch with your local Jobcentre Plus or Jobs and Benefits Office to find out what benefits you might be entitled to.
More information on Jobseeker’s Allowanceopens in new window.
Universal Credit is a single monthly payment for people in or out of work.
It replaces some of the benefits and tax credits that you might be getting now.
Find out more in our guide on Universal Credit.
For full details of the benefits available, eligibility and financial support, go to the GOV.UK website