Health insurance may prove the best policy
3 November 1997
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Court of Appeal cautions employers against blindly accepting an occupational health opinion that employee is not disabled
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The first benefit companies usually provide for their employees is a pension. This is sensible, because the true value of state pensions is gradually being eroded. Curiously, the second benefit companies often provide is life assurance. Yet this may not be very valuable for many employees, particularly those with no dependants who may prefer benefits that, if needed, they can enjoy.
One benefit from which every employee can benefit is health insurance. But companies are more likely to provide employees with life assurance cover than group permanent health insurance.
Long-term inability to work because of illness, accident or some other incapacity is much more common than most people realise. At any one point in time approximately 1.7m people of working age will have been off work through ill health for longer than 12 months. Many of these will be unable to work again.
Recent DSS statistics reveal that for each person of working age who dies, there are 16 who are suffering from long-term illness or injury. Yet many companies rush to provide life assurance and forget permanent health insurance, even though their employees are likely to find it more useful.
If health insurance is not provided, then a person must rely on the state. And, as with pensions, the State is divesting itself of responsibility for the provision of health benefits.
Current basic long-term incapacity benefit is £61.15 per week. Government legislation passed in April 1995 has introduced more stringent definitions of disability. There is now a greater burden of proof upon the individual to demonstrate that they are truly unable to do any type of work; this includes working in a totally different field doing something he or she would not have chosen under normal circumstances.
Apart from providing staff with an extra cushion against problems caused by ill health, group health insurance also demonstrates to employees that the company cares about their well-being.
Any company which has had a key employee fall ill will know how difficult it is to manage if it has to foot the entire bill, including paying for a temporary replacement as well as funding sick pay. A company would probably not be prepared to pay out on an indefinite claim for sickness. Yet colleagues will judge the company on how well it treats a sick employee - and now the recession is almost over, employees can more easily vote with their feet.
It will always be cheaper to use insurance company money to pay for this benefit than the company's. In addition, group policies offer discounts, sometimes as much as 50 per cent when compared with individual ones. Thus the benefit can be provided relatively cheaply.
As far as tax is concerned, health insurance is designated a P11D benefit for employees, which means they pay tax on it. If the company sets up a group permanent health insurance policy, then payments in the event of a claim are made to the company itself. These payments, in turn, go through the PAYE system to be paid to the employee who is ill.
This differs from way in which individual policies are treated for tax purposes, where the premiums are paid out of net income and the employees receives the benefits tax-free.
You should use an independent financial adviser to help you choose the best policy for your company. Different policies from different companies provide different benefits and there are many pitfalls to watch out for.
One of the most obvious is a policy's definition of disability. You want something that is not similar to the State definition of disability; that is, if you are fit for work, you are fit for any type of work.
It is important to choose a policy that has an "own occupation" definition and does not expect you to take up an occupation to which you are not suited. This is particularly important if employees specialise in a certain area of the law.
If any employees spend time abroad, then make sure that the policy will cover them while they are away. Not all policies accommodate this.
The claims experience of the company that is underwriting the health insurance is also important. Is it slow to settle a claim or is there minimum fuss involved in paying out? You do not want a company to exploit a loophole in its policy at the time when you need it most.
Clearly every company's requirements are different. In addition, companies change over time. What was appropriate five years ago may not be appropriate now. It is important to review arrangements from time to time simply to check that you have the best deal.
Health insurance is likely to become increasingly importance to employees. With the UK emerging from the recession, it is a good time to consider providing staff with this valuable benefit.