Recent statistics indicate that absence pay due to sickness costs the UK firms about ?8 billion a year, though this is not significant when compared to the UK government which pays out ?75 billion every year in terms benefits for working-age people, it nevertheless is a significant sums of money if it can be saved or if smarter alternatives can be found.
Accident and sickness are some of the commonly covered risks in most income protection and payment protection policies. Most covers also include unemployment but if a customer just wants to cover accident and sickness, that is possible too. Several insurers now also offer carer and hospitalization as part of their income protection covers and payment protection insurances.
Under the reform that is being considered, the government would stop paying sick pay and instead its employees would be opting to buy the income protection insurance. In other words, the employees will have to make a claim in their income protection policy and would be managed by the insurer rather than the government paying out of its coffers.
There are several suggestions on how this should be implemented so that there is a high take up rate and employees are not unburdened with additional costs. One such option is for the employer to take a block income protection cover and employers who chose to do this would get a national insurance rebate from the government. The other option suggests that the employees should be given a choice to opt for it and the ones who opt to buy any form of income protection insurance covering the accident and sickness should get rebates of about ? 100 from their national insurance contributions. In other words the rebate to some extent would go towards paying for the income protection covers. This option will also mean that employees can choose to buy either the standard 12 month option for income protection which is also termed as short-term income protection insurance or opt for a longer duration ranging from 18 months to 36 months. The extra flexibility means employees with failing health will have the option to have an extra layer of protection.
However, as voiced by a few legal professionals, the area of employment law is complicated. Employers have to first of all ascertain whether employment contracts allow them to unilaterally make changes in terms of sick pay i.e. substituting with income protection insurance policies or do they have to involve their staff in long and protracted discussions around this. The other worry which is also legitimate is that most of the existing providers of income protection and payment protection insurance have incorporated an initial exclusion clause which will preclude people from claiming if they are off sick due to a known illness. There are other income and payment protection policies which have a waiting period of anywhere between 30 to 180 days during which the policy holders have to fund themselves. The whole area of which insurance policy is better and what are the pricing policies and underwriting criteria is a mine field.
In the long-term, it is always a beneficial position for employees to be if they can have the flexibility to choose what they need depending on their individual circumstance rather than the existing policies which are managed by the employers, which more often tend to "one size fits all approach". Arguably this would also be a more efficient may for the government to manage it costs. However it is certain to ruffle a few feathers amongst the unions and ranks. It will need a lot of persuasion and phased implementation.
Kesh Thukaram
For more information on: Income and Payment Protection Insurance
For sample policy wordings: Income and Payment Protection Covers
Kesh Thukaram is an insurance specialist in the protection insurance sector of UK. Well respected for his hands-on knowledge and product innovation skills, Kesh is invited by several insurers to assist them in designing products and insurance customer acquisition and management processes.
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