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Yes. PHI covers both physical and mental health conditions, including stress, depression, or anxiety, provided you meet the insurer’s eligibility criteria and supply appropriate medical evidence.
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Permanent health insurance
Being off work due to illness or injury can create serious financial stress, especially if you’ve exhausted your statutory or contractual sick pay. Permanent Health Insurance (PHI) is a valuable employee benefit designed to provide financial security when you’re unable to work due to long-term illness or incapacity.
At Warner Goodman LLP, our Employment Litigation team can help you understand your rights around permanent health insurance, address any disputes with your employer, and guide you through the next steps to protect your coverage and income.
What is Permanent Health Insurance?
PHI is an insurance policy arranged by your employer that pays a proportion of your salary if you cannot work due to illness or injury.
Key points about PHI:
- PHI is typically an employer-arranged benefit, not a personal policy.
- Payments usually cover a percentage of your basic salary (often between 50% and 75%).
- Coverage may last for a fixed period, until you return to work, or until retirement age.
- Some PHI schemes include additional services, such as Employee Assistance Programmes (EAPs).
PHI is more than just a financial safety net – it is a legally complex benefit that not only provides income during long-term illness but can also affect your employment rights, such as holiday pay, notice periods, pensions, and other contractual entitlements.
Contractual vs. Non-Contractual Permanent Health Insurance Schemes
PHI schemes generally fall into two categories:
Contractual: These schemes are included in your employment contract, clearly setting out your entitlement, eligibility, and the terms of the policy. Because they are contractually guaranteed, employees have stronger legal protection in the event of disputes.
Discretionary: These schemes are offered at the employer’s discretion and are not guaranteed in your contract. Employers can modify, suspend, or withdraw benefits, which can make disputes more complex and may limit your legal remedies.
Understanding which type of PHI scheme applies to you is essential, as it can directly affect your rights, the process for making a claim, and how disputes or changes to the policy are handled.
Permanent Health Insurance and Employment Rights
Receiving PHI can have an impact on a range of employment rights, and it’s important for both employers and employees to understand these interactions to avoid disputes:
- Holiday Pay: Time off while claiming PHI may affect accrued holiday entitlement or the way holiday pay is calculated. Employers need to ensure that statutory and contractual holiday rights are correctly managed.
- Notice Pay: If an employee is dismissed while receiving PHI, notice pay calculations may be affected depending on whether PHI payments are considered part of normal remuneration.
- Pension Auto-Enrolment: Employers should consider whether PHI payments continue to count toward pension contributions and auto-enrolment requirements.
- Salary Changes: Changes to salary or other benefits during PHI claims may raise legal issues, particularly if they reduce entitlements guaranteed under contract.
- TUPE Transfers: When a business is transferred to a new employer under TUPE (Transfer of Undertakings), PHI schemes may need to be continued or renegotiated, depending on whether they are contractual or discretionary.
- Data Protection Obligations: PHI claims involve handling sensitive medical information. Employers must comply with GDPR and other data protection laws when processing employees’ health data.
Because PHI interacts with so many aspects of employment law, clear communication and careful documentation are essential. Both employees and employers should review contracts and policies to understand how PHI affects overall employment rights.
PHI and Retirement
With the default retirement age no longer in place, employers can cease PHI coverage for employees aged 65 or older, or at the state pension age (whichever is greater), without breaching age discrimination laws. However, stopping PHI for younger employees could constitute age discrimination and may result in an Employment Tribunal claim.
Termination While Receiving PHI
Eligibility for PHI usually requires continued employment. However, dismissal due to ill health while on PHI can occur. If your employment contract does not allow such termination, you may have grounds for a breach of contract claim.
Settlement Agreements and PHI
Insurance companies may attempt to end PHI entitlement by offering a lump sum. Employers sometimes combine this with a settlement agreement, which:
- Ends the employment relationship
- Provides lump-sum or ex gratia payments
- Requires the employee to waive rights to bring employment claims
It’s crucial to obtain legal advice before signing, as this can affect both your employment and PHI benefits.
Potential Employment Tribunal Claims Related to PHI
Employees may bring claims if PHI entitlements are mishandled, including:
- Unfair or wrongful dismissal
- Disability or age discrimination
- Failure to make reasonable adjustments
Our experienced employment law solicitors can help review your employment contract and PHI policy to protect your rights.
How We Can Help
PHI is a complex employee benefit, and disputes can involve high-value claims, particularly if an employer wrongly reduces benefits or terminates employment. Our Employment Litigation team has extensive experience handling PHI-related issues, including:
 | Reviewing employment contracts and PHI policies to ensure your rights are protected. |
| Advising on potential discrimination or unfair dismissal claims that may arise while claiming PHI. |
| Negotiating settlements and providing tribunal representation to achieve the best possible outcome for you. |
We provide guidance and support to help you understand your permanent health insurance entitlements and ensure your income is protected.
Frequently Asked Questions
What happens if my PHI claim is disputed?
If an insurer disputes your PHI claim, you may need legal advice to challenge the decision. Disputes can be based on contract terms, medical evidence, or interpretation of incapacity, and an experienced employment solicitor can help protect your entitlement.
Do I continue to accrue pension or benefits while on PHI?
This depends on your employer’s policy. Some employers continue contributions to pensions and other benefits, while others may treat PHI payments differently from salary. Always check your contract and policy terms.
Can I switch employers while receiving PHI?
PHI is usually linked to your current employer, so changing jobs may end your entitlement. However, you may be able to negotiate continuation or transfer if the scheme allows.
Is PHI taxable?
PHI payments are generally considered taxable income in the UK. Employers may operate PAYE on the payments, so you should confirm the tax treatment with your HR department or insurer.
How long does it take to receive PHI payments?
Most PHI policies include a waiting period (commonly 13, 26, or 52 weeks) before payments begin. The exact duration depends on your policy and any contractual sick pay entitlements.
Can I appeal if my PHI payments are stopped?
Yes. If your payments are stopped unexpectedly, you can usually appeal directly to the insurer. Legal advice may help if the appeal is rejected or if the stoppage breaches your employment contract.
Does PHI cover partial incapacity or reduced hours?
Some policies provide partial payments if you can work reduced hours or perform modified duties. The terms vary by insurer and policy, so it’s important to review your contract carefully.
Can family members or dependents claim PHI benefits?
No. PHI is an individual benefit tied to your employment and does not provide payments to family members or dependents.
Should I get legal advice before making a PHI claim?
It’s advisable, especially if your claim could be disputed, impacts other employment rights, or involves potential tribunal claims. Legal guidance ensures you understand your entitlement and protects your financial position.
Why Choose Warner Goodman LLP?
Navigating PHI and related employment matters can be complex, leaving you uncertain about your entitlements, policy terms, or potential risks. Our specialist employment solicitors in Hampshire provide clear advice, practical support, and expert representation throughout the process of reviewing, negotiating, or enforcing your PHI arrangements.
We offer a proven track record in handling PHI matters, with benefits including:
| Over 170 years of combined experience in employment law for employees and employers |
| High success rate in advising on PHI entitlements, claims, and related disputes |
| Transparent pricing so you always know what to expect |
| Clients rate us ‘excellent’ on reviewsolicitors.co.uk, based on over 1,000+ verified reviews |
| Fully regulated and authorised by the Solicitors Regulation Authority (SRA) |
With Warner Goodman LLP, you can rely on a team that is experienced, approachable, and dedicated to protecting your rights and achieving the best possible outcome for every client.
Speak to Our Employment Law Experts
If you are making a PHI claim, reviewing your contract and workplace policy, or facing disputes over your entitlements, it’s important to get specialist legal advice. Our experienced solicitors can guide you through every stage — from review and claims advice to settlement negotiations and tribunal representation — ensuring your rights are protected and your financial position is secure.
We assist employees across Hampshire and beyond, with offices conveniently located in Southampton, Portsmouth, Fareham, Chandler's Ford, and Waterlooville. You can choose to meet with us in person or arrange a remote consultation at your convenience.
Call: 023 8063 9311
Email: employment@warnergoodman.co.uk
Alternatively, complete our online enquiry form to request a confidential callback.
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