Permanent Health Insurance Sales May Soar Amid State Benefits Cutbacks

As the UK government reduces state benefits for workers taking sick leave, insurance companies anticipate a surge in sales of permanent health insurance (PHI) policies. However, individuals considering PHI should carefully review policy rules to avoid potential pitfalls in claim eligibility. The complexities in determining when an insurer will pay out benefits make it essential for policyholders to understand the specifics of their policy before signing up.

Key Takeaways:

• Some permanent health insurance policies pay out benefits only if the policyholder is incapable of carrying out 'any' occupation, while most require them to be incapable of their 'own' occupation or a suitable alternative.
• The National Insurance subsidy for statutory sick pay has been abolished for all employers except small ones, potentially leading to reduced sick pay and tougher employer attitudes towards employees with health issues.
• The long-term arrangements for sickness and disability are changing, with Invalidity Benefit being renamed Incapacity Benefit in April 1995. This new benefit will be paid at the full rate after a year, not 26 weeks, and will no longer include a dependent's benefit.
• The new Incapacity Benefit will include a tough medical examination after 28 weeks' sickness to determine the policyholder's ability to function effectively in any job.
• Claims for Incapacity Benefit are estimated to fall by 25%.
• The new benefit will be taxable for anyone making claims after April 1995.
• Stuart Chambers, marketing director of Unum, believes that people will become aware of the need to provide for themselves due to the tougher line on eligibility for Incapacity Benefit.
• Marketing departments deny that the changes will affect private insurers, but policyholders need to scrutinize their existing PHI contracts, particularly those with 'any occupation' policies.
• Munich Re, a leading reinsurer, believes that fewer claims will be made for PHI because people turned away by the Department of Social Security will also believe they are not eligible for their insurance policy.

Statistics:

• 25% estimated decrease in claims for Incapacity Benefit
• 1 year: the new waiting period for payment at the full rate of Incapacity Benefit
• 28 weeks: the current waiting period for payment of Invalidity Benefit
• 26 weeks: the current waiting period for payment of Invalidity Benefit before the change in April 1995
• After April 1995: the date when new claims for Incapacity Benefit will become taxable

Sources:

• "Survey suggests private health insurance companies are sharpening their claims criteria" by Sue Ward in The Sunday Times, date not specified
• Department of Social Security, "Incapacity Benefit: A guide for employers"
• Unum, "Healthcare Insurance for Employees"
• Munich Re, "Reinsurance and Risk Management for the Insurance Industry"