UK: Limit your long-term liability.

UK: Limit your long-term liability. - Beware the Disability Discrimination Act 1995 when offering PHI.

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Last Updated: 31 Aug 2010

Beware the Disability Discrimination Act 1995 when offering PHI.

If you offer Permanent Health Insurance (PHI) as part of a benefits package, you must guard against falling foul of the Disability Discrimination Act 1995.

PHI should not be confused with private medical insurance or with a more recent product called critical illness insurance. The latter, for example, simply seeks to provide a sum to cover the immediate cash needs of an employee who is struck down with a long-term debilitating or life-threatening illness.

PHI is designed to cater for long-term income replacement.

If you do offer PHI, it is likely that the terms and conditions of employment state that, in the event of long-term incapacity, you will guarantee payment of salary for a maximum of, say, 26 weeks.

After this, your PHI insurer will provide a benefit, often two-thirds of salary, until the incapacity ends or until normal retirement age.

Under the Disability Discrimination Act, disabled staff cannot be excluded from such a scheme if they can prove that their colleagues, who are not disabled, would have been accepted. However, where schemes are subject to underwriting, the insurer is under no obligation to accept the liability.

An underwriter, for example, may wish to screen higher-paid new entrants and may not admit liability for a claim.

You must therefore take steps to protect yourself from costly liability by reviewing the wording of your terms and conditions to emphasise that admission to group permanent health insurance is subject to medical acceptance by the insurer. Any claim or payment is therefore subject to the conditions defined in the policy.

If you have a question you would like one of our experts to address, write to: SME, 174 Hammersmith Road, London W6 7JP.

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