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Business Critical Illness Cover or Key Man Income Protection

How to protect your business against the cost of employee sickness

Any business owner looks to keep costs low without compromising the quality of the service or product that they provide to keep a profitable business.  With employee salaries being one of the biggest overheads, what happens when a key member of staff becomes seriously ill? In the past businesses were able to reclaim statutory sick pay for their employees. But often, the payment isn’t enough for employees and small businesses can suffer when having to pay for staff off sick. In. addition to this, when employers want to offer their employees more, it often needs to come out of their own pocket. However, business critical illness cover or key man income protection can actually help the business to continue to pay the salary of the employee and claim the money back.

For a more profitable business, critical illness cover, or key man income protection can help give employees a little extra recovery time and help the business claim back the costs.

Statutory Sick Pay (SSP)

Every employee in the UK is entitled to receive Statutory Sick Pay when they are too ill to go to work. In order to qualify for Statutory Sick Pay, employees need to be off work sick for 4 or more days in a row. During that waiting period, they may not receive pay if they are unable to work and then return before the 4 days. If you are suffering from ill health, it may be best to look at income protection policies. In particular, if you are self-employed and don’t get access to SSP.

How much is SSP?

Statutory Sick Pay works out around £89.35 a week for full-time employees. Employees receive SSP for the days that they would normally work. It is paid to each employee in the same way as their normal salary or wage. This means that tax and national insurance are deducted from the amount.

What is covered?

In order to qualify for SSP, the employee has to have been ill for at least 4 days in a row. Employees cannot claim SSP if they’re already receiving Statutory Maternity Pay. Most illnesses and sickness are included in SSP, but employees must claim it through your employer. A doctor’s ‘fit note’ should be provided if the employee has been ill for over 7 days.

How long for?

Employees working for a limited company can receive SSP up to 28 weeks. Employees can also link periods of sickness if they are longer than 4 days each and 8 weeks or less apart.

Businesses are no longer able to reclaim SSP

In 2014, a rule was enforced where employers were no longer able to reclaim SSP. This affected a lot of small businesses, who suffered from the costs of employee absenteeism. Despite this, business critical illness cover, or key man income protection can help businesses claim back the costs of sickness. It also provides a great benefit for employees, who can often receive more than the statutory amount or, even, a full salary if they fall ill.

Business critical illness cover

Businesses can take out critical illness cover on their employees. Much like business life insurance, a business critical illness policy will pay out a financial sum of money to the business in the event that the employee becomes unwell and is unable to work.

What are the advantages of taking out critical illness cover?

With business critical illness cover on an employee, they can receive a financial pay-out when an employee needs to take long-term time off due to a serious illness. When an employee suffers from a stroke, heart attack or critical illness, the business can make a claim when the employee is out of work. The money received can help the business to pay the employee’s salary whilst they are off. In addition to this, the extra money can be used to get temporary cover. Critical illness is also a contractor insurance sickness cover, providing income when you are unable to work. If you are self-employed you’re less likely to receive SSP and a critical illness cover can really help.

The main advantages of taking out business critical illness are:

  • The business can recruit and retain high-calibre employees by offering a sick pay scheme or occupational health scheme as part of a competitive benefits package
  • Money or salary paid to the employee whilst they are off sick can be claimed back and avoid selling business assets or spending company profits
  • The employer can look for and hire temporary cover to continue business operations
  • The business can protect remaining employees by avoiding an overload of work and stress caused by employee absenteeism.

What are the disadvantages?

Whilst having critical illness cover for employees can be a great benefit, it doesn’t cover all illnesses. In fact, every provider has a different definition of critical illness and what their policy covers. Often, this won’t include mental health, which has increased by 71.9% since 2011. Whilst major illnesses such as stroke, heart attack, brain tumours and permanent blindness, there are some that don’t qualify. Not every type of cancer is covered, and it can depend on the stage of cancer. Minor strokes and heart attacks aren’t always included either. Further to this, if someone were to be off long-term for minor illness, the policy will often not pay out.

If the business has taken also taken out life insurance, most providers only pay out once. Therefore, if the employee were then to pass away, the business would not receive another payout.

Key man income protection

Key man income protection, it works in a similar way to critical illness. However, the business can take out the amount regardless of what illness the employee is suffering from. This means all cancers, minor sickness or mental health illnesses can be covered. For example, an employee may be signed off for two weeks to a month with a broken bone. The employer can then offer to pay their full salary during this time to allow time for recovery. In addition to this, the business can use the income protection to cover grievance leave too and maternity leave. It helps the business recoup all costs caused by employee absenteeism.

Whilst paying statutory sick pay is what most businesses offer, having an insurance policy in place can really help. Self-employed workers do not get access to SSP so critical illness can provide contractor insurance sickness cover. Income protection and critical illness cover are especially useful for small businesses who can recoup the costs of illness. It can help keep the business running as normal and avoid overworked employees. In addition to this, it can help employees by giving them time to heal without losing out on salary.

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