Group Income Protection
Protecting your company's most important asset...
What does Group
Income Protection covers illness and injury but the definition of incapacity makes a huge difference to the scope of protection provided:
'Own Occupation' Cover
With this definition of incapacity the policy can payout for any medical condition that prevents an employee from working in their own specific job role.
'Suited Occupation' Cover
This lesser definition of incapacity would only payout if an employee is unable to undertake 'any occupation' given their skills, experience and education.
Expert support is often provided by the insurer during rehabilitation to aid employees in returning to work.
How does Group Income Protection work?
An employee ceases working due to illness or injury
A claim is made with the insurer (including a GP note)
The insurer starts paying out a monthly benefit after the deferred period.
The plan pays out until the employee returns to work or reaches the maximum payout length
See the 'Our Options' section for more information on the deferred and payout periods.
Level of cover
It is possible to cover up to 75% of gross income (less long-term incapacity benefits). It is important to note that the employee would be liable to income tax.
This is the length of time the employee would need to be off work before the policy kicks-in and starts paying out.
Tip: The deferred period is usually aligned with the length of time the employee would receive full sick pay.
Other key policy options which will need to be considered include the policy payout length and the option to cover employer NI and pension contributions.
Being Independent Insurance Advisers we pride ourselves on being the experts, knowing every insurance product we offer inside out and back to front. Here's how we work -
The Fact Find:
Group Income Protection insurance is designed to help you manage long term sickness absence more effectively. By providing a guaranteed income for employees who are unable to work as a result of illness or injury, you are able to financially support them through what can be an emotionally and financially difficult time.
One of the most important aspects of group income protection that often gets overlooked is the rehabilitation programs that are often available as part of the product, supporting employees through stressful times and encouraging their recovery and return to work.
Group Income Protection can take a number of different forms; most usually it is designed to provide a percentage of the employee's gross pay less the employment and support allowance (ESA). The benefit is paid gross and as the employer you deduct tax and National Insurance before passing it on to the employee as pay.
An employee is entitled to statutory sick pay if they are under a contract of service with you and are sick for at least four days in a row including weekends and bank holidays and days that they do not normally work. As long as their earnings at least £102 a week (Year 2011-2012) they are entitled to the standard rate for statutory sick pay at £81.60 a week (Year 2011-2012).
This limited level of cover would leave many in financial difficulties should they be off work for a considerable time period. Often employers supplement the SSP with occupational sick pay of sorts.
Providing an income protection insurance not only provides you and your employees with the financial support they vitally need when suffering a long term illness but will also provide advice and assistance services helping employees through their recovery and return to work.
There are a range of factors which affect the cost of your premiums some relating specifically to your organisation others relating to the level of cover both are detailed below.
Level of cover
The level of cover is a key factor when it comes to the cost of your premiums. The greater the percentage of an employee's salary which is covered the greater the premiums. The level of cover tends to range from 50% to 75% of gross earnings.
There are options available to vary the cover including covering 50% of the employee's salary and allowing them to buy up to 75% or providing varying levels of cover for different grades of employees within the organisation.
The deferred period is the time from which an employee is initially off work to the time when the insurer starts paying out a claim. The deferred period is often aligned with occupational sick pay. The longer the deferred period the lower the premiums as the longer the deferred the lower the risk of a claim being made.
As an income protection plan could end up paying out for a considerable period of time the benefits may also be protected against inflation by including an escalation option. Including an escalation option means that any benefit payable will increase over time tending to increase in line with the retail price index (RPI), to a maximum of 5%.
Include national insurance and pension contributions
As a benefit the income protection payment gets paid gross to you the employer who then deducts Tax and National Insurance from the payment. Due to the benefit still being processed through PAYE there is an option on the policy to cover employer National Insurance and employer Pension contributions if required.
Like with any protection policy age can be a factor. We all know the older we become the more aches and pains we tend to suffer and the more likely we are to be off work for a considerable period of time. As such if you have an older population working for you the premiums are likely to be higher than a mirror company with a younger working population.
Working conditions can vary considerably both mentally and physically depending on occupation, some industries are more susceptible to stress and mental conditions while others tend to have more physical risks. The more susceptible the industry is to having employees off work due to long term illness or injury the higher the premiums for that industry.
A benefit claim will start being paid when an employee has been unable to work due to illness or injury for a greater length of time than the length of the deferred period on the group permanent health insurance scheme.
As the policy is held with and paid for by the employer any benefit payment is paid to the organisation, the benefit must then be processed through PAYE as if salary for the employee, the benefit is then paid by the employer to the employee as income.
Although the core benefit offering is to replace employee earnings due to long term illness or injury during a claim there are many additional services the insurer is likely to provide to reduce the burden placed on the organisation and help the individual recover.
Vocational rehabilitation has two major advantages. Firstly, it helps minimise the cost of long-term illness or injury to your company, such as money spent on recruiting and training replacement staff. Secondly, it allows the valuable skills and knowledge that has been built up by the individual to be retained within a company.
If you are looking to implement a group income insurance policy or review an existing arrangement then we are in a great position to help you. With our expertise in the insurance industry and your knowledge of your organisation, together we can design the most appropriate cover and ensure the most competitive premium rates from the insurers.
If you are looking to protect a single director or executive the most appropriate policy to consider is likely to be Directors Income Protection.
10/01/2015 N Tanner
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