Sickness waiting periods: calculate the cash gap before comparing premiums

The business question

A longer waiting period can make a sickness policy look attractive while shifting the first weeks of an absence onto the company. The important question is whether available cash and employment commitments can absorb that interval, especially when a replacement must be paid at the same time.

Understand the mechanism

The waiting period describes when contractual sickness benefits begin; it does not remove an employer’s separate salary-continuation obligations. Benefit percentage, insured salary, duration and calculation basis also matter. Contractual reimbursement and payroll expenditure should therefore be modelled on different lines.

Hypothetical business case

Hypothetical example: a company pays CHF 6,000 monthly gross salary and compares a 30-day with a 60-day waiting period. A rough 30-day incremental gross-salary exposure is CHF 6,000, before employer charges and replacement expenses. This simplified illustration is not a policy payout calculation and assumes the relevant salary remains payable.

Decisions before you commit

Build absence scenarios lasting 20, 60 and 180 days. Put required payroll, expected reimbursement, employer charges and replacement costs on separate rows. Obtain confirmation of how calendar days, partial incapacity and repeated absences affect the waiting period before choosing a cheaper quotation.

Your evidence pack

Request policy conditions, employment promises, cash reserves and the insurer’s worked reimbursement example. Set a maximum uninsured cash interval that the company can tolerate. That decision creates a coherent specification for competing quotations rather than allowing the lowest premium to define the business’s risk tolerance.

Stress-test the decision

An insurer can price the risk transferred, but only management can decide how much short-term cash exposure the company should retain. A waiting-period saving is meaningful when it is compared with a reserve that remains available during a bad trading month. Consider two concurrent absences and delayed client payments, rather than only one isolated event. If the reserve is shared with VAT, rent or loan payments, it is not all free to fund sick pay. Describe this constraint in the quotation request so the recommendation addresses the company’s actual liquidity.

Trade-offs and implementation

Distinguish the cost of retaining a risk from the cash needed to bridge insurer processing. A company might ultimately receive an accepted benefit while paying payroll first. That timing difference belongs in the financing scenario even if it does not change the final net cost. Ask when documents must be supplied and what commonly delays reimbursement.

The company can also compare a shorter waiting period with a dedicated reserve, but the reserve must have a credible replenishment policy. After one long absence uses it, the next event does not wait for management to rebuild cash. Set an amount and a recovery timetable, then test them against ordinary trading needs. A lower annual premium combined with an unfunded promise to self-insure is not a complete financial plan. The final choice should remain affordable in a difficult year, not merely in the optimistic budget used when the business first requested quotations.