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This kind of insurance
is designed to provide a replacement income if illness or injury prevent
someone from working for a long period of time.
Mostly it is used by an
employer to finance an entitlement to occupational sickpay which arises
out of the contract of employment issued to their staff. It is possible
for the employer to insure pension contributions and NI contributions in
addition to the basic income benefit.
Benefits become payable
after the end of that waiting period which is known as the deferred
period. Typically this will be about 6 months but longer or shorter
periods are available.
The emphasis for
providing such cover is currently considered to be moving from merely
providing a benefit to offering a valuable absence management tool via
rehabilitation services.
The employer gets
corporation tax relief on premiums. Benefits are paid to them to be
forwarded to the employee through their payroll system. The employees pay
income tax and NI contributions on the occupational sick
pay they receive and they do not incur any P11D tax liability.
With partnerships,
benefit payments are generally not taxable and premiums are not
deductible.
The insurance benefit
becomes payable when the member has been ill for an
agreed deferred period.
These vary enormously
according to type of occupation and previous claims experience. A scheme
paying a benefit 75% of gross salary after a six month deferred period
(typically standard terms) could cost a modern telecoms company with no
previous claims history 0.5% to 0.7% of gross payroll rising to 1.5% to 2%
for a firm of "blue collar workers"
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