Health insurance: a simple guide

Health insurance has always been a feature of employers’ employee benefits packages, most commonly as life insurance for the whole workforce. But are benefits that insure employees’ health still valid and still valued?


As we say above, this is a guide only and should not be taken as advice. For financial advice about the suitability of any product for your business, please speak to your financial adviser.


If you ran a business a scant 30 years ago, chances are you’d be looking out of your office at a workforce made up largely of able-bodied men working full-time.

Fast forward three decades and you’ll find more women, more part-time workers and more disabled people. And we’re working for longer. Not only is the State Pension Age continuing to edge higher and higher, more and more people are working beyond retirement.

But employee benefits – especially the provision of health insurance-type benefits - haven’t evolved to reflect these changes. The make up of today’s workforce means that people need more than just a pension in the distant future. They need and value financial protection for the now – to soften the blow of illness or injury – and an employer that offers health and wellbeing benefits.

In fact, research1 across five key industry sectors shows that 62% of employees specifically highlighted financial support through ill-health as a factor that made up a good benefits package, making this a bigger factor in staff loyalty than a good bonus or pension (both 54%).

And there are sound business reasons for offering health benefits, beyond being a caring employer:

  • sickness absence costs businesses an average £522 per year for each employee2
  • Each employee takes an average of 6.3 days sick each year3
  • recruiting and getting a new employee up to speed costs, on average £30,614 (for an employee earning £25,000 or more) 4

As well as a key tool in the war for talent, choosing the right health insurance benefits can help ensure your staff are happy and less inclined to go off sick – providing a big plus in productivity.

So what can employers do to better protect their people? This guide takes you through the main health insurance products on the market.



Income Protection

Simply, Income Protection can provide a percentage of income if an employee is unable to work due to illness or injury. Typically, an Income Protection policy pays out after an employee has been off work for 6 months (called the deferred period or waiting period) and can pay up to as much as 80% of their salary until either they return to work or reach retirement age – though both figures can change depending on the policy chosen. However, it doesn’t cover redundancy.

Sick Pay Insurance

There are also policies available for short-term absence (sometimes called Sick Pay Insurance or SPI). Some SPI products pay benefit from as little as 1 week’s absence.

A short-term policy like SPI normally comes with the same benefits as a long-term Income Protection policy, but is designed to tackle the problems associated with short-term absence, such as the volatile costs and administration involved. It can also complement or replace existing sick pay policies.

And remember, many policies offer a no-cost Employee Assistance Programme as standard – providing two employee benefits in one.

Life insurance/death in service

Life insurance is often one of the first employee benefits that companies plump for. It provides peace of mind and a tax-free lump sum to an employee’s loved ones in the event of untimely death, helping relieve money worries at a very difficult time.

It’s a cover which allows flexibility around choice – for example, companies can decide what multiples of an employee’s salary to pay. Life cover can pay out from as little as 1x salary, though 4x salary tends to be most common.

Some Life cover also includes the added value of bereavement services to help partners and families through the emotional upheaval death brings.

Counselling or Employee Assistance Programmes (EAPs)

Financial products such as income protection and life insurance sometimes include a built-in Employee Assistance Programme (EAP). This offers a range of support tools to employees on a wide range of work/life issues. Importantly, they typically include employer support too.

Employees can get confidential support and counselling on a range of personal or work-related issues, such as finances, careers, parenting and childcare, caring for the elderly, retirement and disability. This may be by telephone or face-to face.

Employers may get no extra-cost access to legal expertise, providing advice on disability and employment law. They may also have access to a library of downloadable legal documents.

Plus, an EAP may offer businesses some or all of guidance on recruitment, personal development and performance management, staff development, management advice and advice on workplace health.



Critical Illness

Critical Illness is another of the common heavy hitters found in an employee benefits package.

It can pay a tax-free lump sum directly to an employee if they suffer any of a list of defined medical conditions or surgical procedures - classified as critical illnesses - and survive for a set amount of days afterwards, generally between 14-30 days.


Among others, typical examples of the Critical illnesses covered can include:

  • heart attack
  • stroke
  • kidney failure
  • major organ transplants
  • certain cancers
  • conditions likes multiple sclerosis

Most policies may also pay out if the employee is permanently disabled as a result of a specified injury or illness.

While Critical Illness is specifically designed to pay off an employee’s debts or mortgage, or even for adaptations needed at home, it’s entirely up to the employee how they choose to spend it. There are no restrictions.

However, people can only claim once for a particular critical illness, though they can typically make another claim if they are unfortunate to suffer another, unrelated critical illness. Also bear in mind that some policies may end once any claim has been paid.

Personal Accident Insurance

Not to be confused with Income Protection or Critical Illness, PAI can pay out a one-off, tax-free lump sum if an employee dies or suffers a permanent total disability following an accident or unforeseen event. However, it doesn’t cover general disability or sickness.

Medical/Health Cash Plan

A medical/health cash plan essentially covers smaller health issues. Depending on the condition claimed, it can either reimburse or pay towards healthcare such as physiotherapy, check-ups, minor dental work and eye tests.


Dental cover is fast gaining in popularity as an employee benefit5. Typically offering greater and more comprehensive cover than a Health Cash Plan, depending on the plan chosen, it can cover 100% of NHS charges and contribute towards private dental treatment up to a set annual limit for a range of procedures. It also frequently covers required dental treatment following accidents or emergencies anywhere in the world.

Private Medical Insurance (PMI)

PMI is designed to meet either all or part of the cost of private medical treatment. It usually covers acute illness or injury, but pre-existing conditions will typically be excluded.

PMI can help to ensure that an ill or injured staff member – and often their families – can get the expert treatment they need outside of the NHS.

From an employer’s point of view, with private medicine often seen as speedier than NHS waiting lists, employees could return to work faster, lessening the impact on colleagues, cutting costs of temporary staff or overtime and helping productivity.

Better benefits - at no extra cost


It’s important that any benefits portfolio works hard not just for employees, but also for your business.

Having the budget to add benefits any time is a great position to be in, but what happens if you haven’t got the budget to make additions to your employee benefits package?

If you’re an employer, there are ways that you can free up funds. As an example, traditionally, life insurance policies offered 4x salary as a lump sum, but reducing the cover to 2 or 3x salary could free-up valuable funds to enable you to introduce a new benefit.

Where can I find out more?

For employees: There's detailed and impartial advice about employee benefits on sites such as Money Advice Service. Or have a chat with HR (or the MD or Office Manager in a smaller company) if you don't know what benefits you've currently got, or if you would like to ask for changes to your benefits.

For employers: Find out more about employee benefits by speaking to your IFA, or take a look at one of the many employee benefits sites such as www.employeebenefits.co.uk or CIPD.

You can also find out about all the health insurance products Unum offers, namely, Group Income Protection, Life Insurance and Critical Illness insurance.

1 Research from ICM, commissioned by Unum – 2014 - Legal, Retail, Accountancy, Media & Advertising, and IT sectors
2,3 CIPD Absence Management Survey Report, 2016
4 Oxford Economics commissioned by Unum “The cost of brain drain”, February 2014
5. LaingBuisson Health Cover - 13th edition, 2017