Salary continuance insurance, income protection insurance, or sickness and accident insurance, are all names given to insurance policies that pay you a percentage of your regular income when you become sick or injured and cannot continue earning in your own right.

Such insurances normally pay up to 75 percent of your regular salary every month whilst you are laid up. You can arrange cover with some insurers to pay up to 100 percent of your income, but this level of cover is more expensive, and not encouraged, as it is believed that with this type of insurance there has to remain an incentive for you to return to work once you are able.

The Waiting Period

There is also a waiting period for you to agree to before the benefit begins. The waiting period you choose can depend on how long your employer’s sickness benefit lasts. Your salary continuance insurance is normally arranged to start payments when your employer’s cover ceases. If you are self employed you might want to have your cover begin earlier. This will no doubt depend on how much you have put away in your own right and your day to day expenses. The earlier you arrange to have the payments start the higher the premium costs.

The length of Benefits

Another feature of salary continuance insurance is that you also have to nominate how long you want the payments to continue, if your inability to work is prolonged. This may also be determined by the cost of the cover but you will have a choice from 12 months to five years or even up until retirement age.

To assist in making up your mind concerning what level of salary continuance insurance would best suit your particular situation, it could pay you to look at the following considerations:

• How long will I need the monthly income to continue for, in order for me to make suitable arrangements for my family’s ongoing financial comfort, should my disability be prolonged?
• How little can I live on if I couldn’t go to work because of my disability? Don’t forget such things as rent or mortgage payments, utility bills, food and transport costs and your new medical costs.
• When would I need the proceeds from my salary continuance insurance to start paying? Take into account the money you may be saving for a new car or holiday. It may pay you to forego these types of things in order to lower the premium cost of your insurance by lengthening the waiting period if you can afford to do so.

If you can get the answers to these three questions right, you could save yourself a lot in ongoing premium costs, while still having the peace of mind of knowing you will receive salary support when you need it most.

Employer’s Cover

The problem of not being paid while laid up with an injury or serious sickness is not that of an employee alone. It can also be of great concern to an employer. An employer can be faced with the following dilemmas:

• Can I run the risk of my employee recovering and going to work for my competitor, especially if he or she is a key worker in my organisation?
• Should I terminate my employee’s contract as soon as the statutory sick pay period runs out? This could cause an adverse reaction from the remaining workers.
• Do I continue to pay my employee’s salary even after the statutory sick leave period is finished? This would no doubt be appreciated by the employee and give the other staff members peace of mind and security in their work role.

In order to keep good faith with staff an employer could well see benefit of taking out a salary continuance insurance policy to extend their statutory sick pay requirements for all staff members. In this way all personnel would be covered against loss of income because of injury or illness for an extended period. This type of cover can be arranged through group insurance at a very low cost which could be as low as just one percent of the total company payroll.

Companies can benefit by ensuring their employees are looked after when they become ill and disabled. Such care is looked on favourably by employees and is likely to attract the best calibre worker in the future. Many employers already have a common policy of such a nature in a superannuation fund. However, many superannuation fund salary continuation insurance policies are limited to no more than 75 percent of the normal salary previously paid to an employee before he or she became too ill to attend work. They often don’t start paying till 90 days have passed following the claim being filed, this means the first payment doesn’t appear in the employee’s hand until after 120 days have elapsed. Even then most payments stop after two years.