LV= launches simple sick-pay insurance

This simple insurance policy gives you sick pay if you can't work due to sickness or accidents.

Protection specialist LV= has launched a simple insurance policy designed to provide customers with 'sick pay' when they are unable to work due to sickness or accidents. 

Sick pay insurance 

LV= -- which has over five million UK customers and dates back to 1843 -- claims that its new Sick Pay Insurance is 'the first of its kind on the market'. 

Essentially this policy is a simplified income-protection policy that pays monthly benefits for up to a year to sick, disabled and injured claimants. In some ways, it is similar to the now-disgraced payment protection (PPI) policies that were widely mis-sold over the past 20 years. However, unlike PPI, LV='s Sick Pay Insurance is not vastly overpriced and riddled with get-out clauses. 

Let's take a look at the details of this new protection product:

Who can apply? 

• This cover is available to working UK residents aged between 17 and 45.
• Everyone pays the same price, regardless of their job or medical history.
• Cover is based on the hours you work, not the salary you earn.
• Only five high-risk occupations are excluded: divers, miners, professional sportspeople, fishermen and HM Armed Forces personnel.
• LV= cannot cancel or change this cover once your policy is set up. 

Note that this policy excludes applicants aged 46 and over, although cover can last until age 70. By being firmly aimed at our society's fitter, younger workers, this brings down the cost of this cover.

How much does cover cost? 

• Those working between 16 and 29 hours a week have £500 of cover, initially costing £10 a month.
• Those working for 30 or more hours a week can choose from six levels of cover: £500, £600, £700, £800, £900 or £1000, initially costing £10, £12, £14, £16, £18 and £20 per month respectively.
• Premiums are fixed for the first five years. After that, they can (and probably will) go up as you get older. 

When can you claim? 

• You can make a claim after four weeks of being off sick from work.
• When you claim, LV= will check that you were still doing at least the number of hours of paid work when your claim began that your cover is based on.
• All claims are assessed on whether you can your own job, which is the easiest definition to claim against.
• Payouts last a maximum of 12 months per claim. Multiple claims can be made, even for the same illness or condition. 

One important exclusion 

Many similar policies, notably PPI cover, automatically reject claims for a range of common medical conditions, such as back pain and mental-health problems. 

However, LV='s Sick Pay Insurance only excludes claims for 'pre-existing medical conditions' -- those you have suffered from in the two years before applying for cover. Other than this pre-existing exclusion, there are no types of accident or sickness that won’t be covered. 

The policy's pros and cons 

At first glance, I can see that LV='s Sick Pay Insurance is a great improvement on the awful PPI policies mis-sold in their millions during the Nineties and Noughties. For a start, the monthly premium works out to be just 2% of the monthly benefit, which is a fraction of the rip-off rates lenders once charged for PPI. 

However, Sick Pay Insurance is not as comprehensive as full-on income protection, which pays out monthly benefits until claimants reach normal retirement age or die. Then again, income protection is far more expensive than this cover --and the vast majority of sickness claims last less than 12 months. 

One advantage of this cover is that monthly payouts are not affected by any other insurance, company and state benefits. Even if you get full sick pay from work or payouts from other sickness policies, Sick Pay Insurance will still pay you the fully monthly benefit you have paid for. 

LV= admits that Sick Pay Insurance is aimed at those who do not traditionally seek financial advice, and are therefore unlikely to buy income protection. Also, there is no medical underwriting when applying for Sick Pay Insurance. While this makes for simple applications, it can lead to claims being unexpectedly (and unfairly?) rejected years down the line. 

What's my verdict? 

Having worked in the insurance world since 1987, I have wide experience of designing, marketing and managing protection products of this kind. Also, I'm quite a fan of LV=, the UK’s largest friendly society, which has no shareholders, because it is owned by and managed for the benefit of its policyholders. 

That said, this policy is a kind of hybrid between short-term PPI cover and long-term income protection policies. These days, Best Buy PPI policies can be cheap and cheerful, but don't offer the far-reaching protection against sickness, accidents and disability that income protection provides. 

For people on modest budgets looking to protect themselves financially against being unable to work due to sickness or accidents, Sick Pay Insurance is inexpensive and 'does what it says on the tin'. However, workers with partners, spouses or children may prefer the more comprehensive -- and more expensive -- peace of mind provided by income protection. 

In summary, while I'd like to see more policies such as Sick Pay Insurance, further work needs to be done by insurers in this area. Affordable, simple and comprehensive sickness cover is a must, especially in this savings-starved age of austerity!

More from Lovemoney on cover for sickness and unemployment:

Nationwide Lifestyle Protector: 10% discount on unemployment insurance

What's better than PPI?

Five ways to protect your income

Think about insuring against poor health