Accident & Sickness Insurance
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What is Accident and Sickness Insurance?
Accident and Sickness Insurance (also known as “sick pay insurance”) is a form of short-term income protection. It protects policyholders by paying out a monthly benefit if they are unable to work due to an accident or sickness.
Depending on the insurer, the monthly benefit can normally be up to 65% of pre-tax earnings. The benefit period (how long the monthly benefit is paid) can be between 12 and 24 months. Policies with longer benefit periods are generally more broadly referred to as Income Protection.
Why have Accident & Sickness insurance?
It is a well-known fact backed up by UK Saving Statistics that the vast majority of UK households would run out of money in less than three months if they had to survive solely on their savings.
For many families and individuals, the financial hardship caused by a prolonged period without a proper income is likely to be the result of an unwanted surprise such as an accident or illness. This is where Accident & Sickness insurance comes into play, providing the financial stability of a replacement income to ensure essential expenses like mortgages, rent, and bills can still be met.
Even for those who are fortunate enough to have substantial savings, an Accident & Sickness insurance policy can help to protect that hard-earned cash from rapidly disappearing.
For the UK’s self-employed workforce, this type of insurance policy can help reduce the financial burden a forced absence from work may cause. With no employee benefits or contractual sick pay by default, this can be a cost-effective solution. For more information please see self-employed accident and sickness insurance.
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How does Accident & Sickness Insurance work?
What does Accident & Sickness Insurance cover?
A policy will cover an individual if an eligible injury or illness prevents them from being able to work. Policies can offer consumers different level of incapacity which clearly define “being able to work”. Commonly these are referred to as “Own Occupation“, “Suited Occupation” and “Any Occupation“. For more information please read see ASU Eligibility and Exclusions.
How long do I have to wait before Accident & Sickness insurance pays out?
This is determined by the “Deferred Period”. Sometimes referred to as the “excess period” or “waiting period”, this is the length of time before the insurer will start making the Monthly Benefit payments. The policyholder can normally choose the length of the deferred period to be either 30, 60, 90, 120, or 180 days. The longer the Deferred Period, the lower the monthly premiums.
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How much will Accident & Sickness insurance pay out?
The “Monthly Benefit” can generally be up to 65% of gross pre-tax earnings, with many insurers capping the Monthly Benefit of ASU policies around £2,500. If the policy’s monthly premiums have been paid by an individual (as opposed to a company), the Monthly Benefit should be tax-free. Those in need of a higher Monthly Benefit will need to consider a more comprehensive Income Protection policy.
How long will Accident & Sickness Insurance pay out?
The Payout Period (sometimes referred to as the “Benefit Period” or “Policy Length”) is the maximum amount of time a policy will continue to pay the Monthly Benefit. For Accident & Sickness policies this is usually either 12 or 24 months. For those seeking longer term protection will need to consider Income Protection.
How Much Does Accident & Sickness Insurance Cost?
The main factors which affect the cost of a policy include:
Monthly Benefit
The higher the monthly benefit chosen by the policyholder, the higher the monthly premiums will be.
Age
Monthly premiums typically increase as policyholders age. This reflects the increased risk of health-related issues and recovery time needed for common accidents.
Deferred Period
Policies that begin paying the monthly benefit after 30 days will have higher premiums than policies which pay out after 60 or 90 days.
Health & Smoking Status
A non-smoker with no pre-existing conditions will enjoy lower premiums than a smoker with existing health issues.
Occupation
Low-risk, office-based roles are likely to have cheaper monthly premiums than those for high-risk, hazardous professions such as construction workers.
Benefit Period
A policy with a benefit period of 12 months will have a lower monthly premium than the same policy with a 24-month benefit period.
Incapacity Level
As outlined above, “Own Occupation” policies will have higher monthly premiums than “Suited Occupation” or “Any Occupation” policies.
Things to consider before taking out a policy.
A specialist broker can also help save a great deal of time and assist the customer with comparing the value of different policies.
Before are some considerations to discuss with your broker before setting up a new policy.
Monthly Outgoings
It’s important that the monthly benefit of any policy does not fall short of the policyholder’s financial commitments.
Occupation
Some policies are better designed to meet the needs of specific professions, and some policies may not be well suited to higher risk occupations. Additionally, some occupations may not be able to obtain insurance at all.
Existing Insurance Policies
Are there already any insurance policies in place that specifically cover mortgage or loan repayments? If so, the monthly benefit of any policy should be reduced to take these into account. Alternatively, in certain circumstances it may be appropriate for other policies to be consolidated into one.
Employment Status
Some insurers may offer policies which are more favourable for self-employed professionals or contractors. An Accident and Sickness Insurance for Self-Employed policy or an Executive Income Protection policy is likely to be more suited to their needs.
Employee Benefits
Check the length of any contractual sick pay provided by your employer. In many cases, employers may pay just 30 days before reverting to Statutory Sick Pay, which from April 2025 is just £118.75 per week. If contractual sick pay is offered for a period of 90 days, then a policy should have a deferred period of 90 days to ensure continuity and that the monthly premiums are not higher than necessary.
Savings
Those fortunate enough to have enough savings to see themselves through a prolonged period without an income should still carefully consider whether they would want to use their savings for that purpose. However, since a longer deferred period can greatly reduce monthly premiums, it may be suitable to increase the deferred period to 90 or even 180 days.
Eligible Claims & Exclusions
Incapacity Levels
Any Accident & Sickness or Income Protection policy will have to define how incapacitated the policyholder must be for the policy will payout. To do this, insurers often use one of three definitions of incapacity which sometimes can be selected by the policyholder when the policy is first set up. These are:
Own Occupation
This definition of incapacity generally means that the policyholder will be entitled to the monthly benefit if an accident or sickness prevents them from being able to perform the duties of their specific job.
For example, if a driving instructor were to break their leg or arm they would not be able to teach driving students until they had recovered and regained full strength and movement and were medically cleared to return to work. Even though the driving instructor could potentially still teach driving theory in a classroom environment, an Own Occupation policy would define them as incapacitated and the claim would be eligible.
Suited Occupation
This level of incapacity generally means that the policyholder is entitled to the monthly benefits if an accident or illness prevents them from being able to perform a similar occupation suited to their skills, experience and qualifications.
For example, a project manager for a software company is diagnosed with Chronic Fatigue Syndrome which diminishes their ability to concentrate on highly complex tasks. Given their experience there are many less demanding and less responsible roles which they may still be able to undertake and would be conducive to their needs. In this scenario, because the medical issue does not prevent the policyholder from being able to work in a similar role, the policy is unlikely to pay the full monthly benefit although depending on the specifics of the policy, may top-up income if it were to drop below the amount of the insured monthly benefit.
Any Occupation
This is the lowest level of cover a policyholder can have in terms of how incapacity is defined. Only if the policyholder is completely unable to undertake any employment would the policy pay the monthly benefit.
Accidents and Injuries
In the event that an injury prevents the policyholder from being able to work for a period of time longer than the policy’s deferred period, this will likely trigger the ability to make a claim against the policy.
It generally doesn’t matter whether the accident occurred at home or work, or whose fault the accident was. Even if the accident was the result of a third party’s negligence, it is likely to still be valid for a claim (subject to the policy’s terms and conditions), although the insurer may look to separately recoup their costs from the third party at fault.
Common types of physical injury would include fractured and broken bones, torn ligaments, and back, head, and spinal injuries. Less common injuries might include those to the eyes or internal organs.
Accident Exclusions
Almost all insurers will have a list of exclusions which is likely to include injuries:
- Caused whilst committing a criminal act
- Which are self-inflicted, due to alcohol, drug abuse, or misadventure
- Sustained whilst pursuing hazardous pastimes*
- Suffered whilst working abroad (unless otherwise agreed)
- Resulting from war / serving in the armed forces
*Insurers may cover injuries sustained whilst pursuing certain pastimes but will almost certainly exclude injuries sustained as a result of a hazardous pastime such as rugby, unless the policyholder has increased the level of cover to include this.
Sickness and Illnesses
Serious medical conditions such as heart attacks, strokes, respiratory diseases, neurological conditions, and certain types of cancer are, of course, likely to require the patient to take time away from work.
Sickness Exclusions
In general, most policies are likely to exclude:
- Pre-existing medical conditions
- Stress, anxiety, or depression
- Standard pregnancy without complications (complication arising during pregnancy may be covered)
It should be noted that not all serious medical conditions are guaranteed to lead to an eligible claim. For example, whilst still worrisome, a diagnosis of a highly treatable early-stage cancer such as Melanoma (skin cancer) may not require the patient to take a prolonged period off work.
Policy Comparison
Accident & Sickness vs Income Protection
Answering 'What's the difference between Accident & Sickness Insurance and Income Protection?', this article looks at the key differences, compares example quotes and considers the potential suitability of both policy types for two self-employed professionals with very different occupations and personal requirements.
About Us
Black Lion Insurance is a dedicated team of insurance consultants with years of experience in guiding our clients to a solution that meets their specific needs. We specialise in helping both employed and self employed individuals, as well as business owners on a variety of solutions, which range from income protection, keyman and shareholder protection insurance.
