Why Group Income Protection?
Group Income Protection protects your employees’ salaries should they be unable to work due to illness or injury.
Central to any good employee benefits package, group sick pay insurance provides peace of mind for your employees and their families.
A highly valued employee benefit which acts as an important means of staff retention and attraction.
31% of people have suffered ill health during their working life that caused them to take time off – Aviva
What Does Group Sickness Insurance Cover?
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 a group 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.
In addition to paying a claim many insurers now also provide expert support services during rehabilitation to aid employees in returning to work.
How Does Employee Sick Pay Insurance Work?
An employee ceases working due to illness or injury
A claim is made with the insurer, including a GP note and any claims forms.
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
Your Key Policy Options
Level of cover
It is possible to cover up to 75% of gross income (less long-term incapacity benefits). It is important to note, however, that the employee would be liable to income tax on the benefit as it’s paid via the normal PAYE system.
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 Experts, 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:
We will talk you through the options available and capture vital information about the employees to be covered.
We go out to all leading group permanent health insurance providers to gain the most competitive options available.
We email you a short report with pricing and insurer recommendations for the various options we’ve discussed. When you are happy to go ahead in many cases we are able to complete the application for you over the phone.
What Is Group Income Protection?
If an employee becomes sick or injures themselves too severely to work, a Group Income Protection scheme will provide them with monthly benefits to supplement their lost earnings while they are in recovery.
Group Income Protection Insurance is designed to help manage long term sickness absence more effectively and help companies retain valuable employees.
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, physically and financially difficult time.
Company Income Protection is most commonly designed to provide a percentage of the employee’s gross pay. Any claim is paid gross to the employer who then deduct tax and National Insurance before passing it on to the employee via their payroll.
How Does Group Sick Pay Insurance Work?
In order to claim benefits from a Group Income Protection scheme, an employee will need to be ill or injured and out of work for a period longer than the chosen deferred period.
As the policy is held and paid for by the employer, any benefits that are claimed for will be paid to the organisation rather than directly to the employee in need. The benefit will first need to be processed through PAYE, as if it is part of an employee’s salary, and after this it is the responsibility of the employer to pay the benefit to the employee.
Although the core benefit of Group Sickness Insurance is to replace employees’ earnings, 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 is one type of benefit and has has two major advantages…
- It helps minimise the cost of long-term illness or injury to your company, such as money spent on recruiting and training replacement staff.
- It allows the valuable skills and knowledge that have been built up by the individual to be retained within a company.
Oliver did an excellent job in making the right recommendations. He's been very patient in dealing with my request and helping me choose the right product. Well done and thanks very much!
Is Group Income Protection Insurance Worth it?
An employee is entitled to Statutory Sick Pay if they are under a contract of service with you and are sick for at least 4 days in a row. This includes weekends, bank holidays and days that they do not normally work. As long as their earnings are at least £113 a week (2018/19), they are entitled to the standard rate for statutory sick pay at £92.05 a week (2018/19) for 28 weeks.
While these benefits may offer short-term financial support, this limited level of cover would leave many in financial difficulty should they be off work for a considerable time period.
Employers who want to further support their employees will often supplement the SSP with some form of occupational sick pay. By having an insurer cover your employee sick pay bill, you may also save money depending on the nature of your employees’ absences and your policy.
Providing a Group Sick Pay Insurance scheme for your employees not only provides them with the financial support they vitally need when suffering a long term illness. It can also connect them with valuable advice and assistance services that will help them through their recovery and speed up their return to work.
Group Income Protection Insurance can provide more than just financial support. One of the most important aspects of policies that often gets overlooked is the rehabilitation programs that are usually available to support employees and encourage their recovery and return to work.
Nadeem Farid, Cert CII
Employee Benefits Expert at Drewberry
Key Company Sick Pay Insurance Policy Options
There are a range of factors which affect the cost of your premiums, some relating specifically to your organisation and others relating to the level of cover.
Level of Cover
Most insurers will allow you to protect between 50% – 75% of gross salary. Providers can treat ESA differently so it is important check the policy terms as it can be deducted off of the gross figure paid out on the group income protection scheme. Remember that any benefit payment will need to be taxed via PAYE before it gets passed on to the employee as sick pay.
When choosing the appropriate level of cover for your employees you will have a policy Free Cover Limit. If the level of cover an employee receives would exceed this limit, they will be obligated to provide details of their medical history. When this happens, the cost of their policy may be increased if they have pre-existing conditions or certain health problems may be excluded. This tends to only affect the highest paid individuals within an 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 and is often set at between 13 and 52 weeks.
The deferred period is often aligned with occupational sick pay because employees cannot claim sick pay and Group Income Protection benefits at the same time. Choosing a longer deferred period will lower the premiums.
Include National Insurance and Pension Contributions
As a benefit, Income Protection payment gets paid gross to 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.
The Importance of ‘Own Occupation’ Cover
Your employees’ ability to claim benefits from a Group Sickness Insurance plan is determined first and foremost by the definition of incapacity used by the insurer.
The right definition of incapacity will ensure that employees can claim when poor health prevents them form working in their specific role, whereas the wrong underwriting type may require them to take on a different occupation that may significantly reduce their salary.
- Own Occupation: Employees can claim monthly benefits from the policy providing their health condition prevents them from carrying out their specific occupational duties.
- Suited Occupation: Employees can claim monthly benefits providing their health condition renders them incapable of carrying out the duties of their own occupation as well as other occupations they are qualified for.
- Any Occupation: Employees will only be able to claim monthly income from their Group Protection Insurance scheme if they’re health problem is severe enough to prevent them from working entirely.
- Activities of Daily Living: Employees will need to go through an examination to determine if they are eligible to claim their Income Protection benefits. Employees will need to fail a certain number of everyday tasks such as climbing stairs or signing their name to be qualified as ‘incapacitated’.
One of the main issues with ‘Suited Occupation’ and ‘Any Occupation’ cover is that the rulings of an insurer are often subjective. What defines a ‘suited’ occupation can also be subjective.
For example, an insurer may consider a classroom assistant a suitable occupation for an incapacitated university lecturer, even though the two occupations a leaps apart in terms of qualifications and salary. Because of these issues, our advisers always recommend choosing own occupation cover.
Some insurers also offer a combined definition of incapacity. This means that for a set number of months while employees are receiving benefits Own Occupation cover will be used and then Suited or Any Occupation Cover will be used if they are still not recovered by the end of this period.
Employee Benefits Consultant at Drewberry
How is Group Income Protection Insurance Taxed?
Business Income Protection is not taxed in the same way as Personal Income Protection taken out on an individual basis.
A personal policy is usually paid for using your wages, which is income after you have paid tax and National Insurance. This detail means you can claim your Income Protection benefits completely tax-free.
Generally, Group Sickness Insurance is not usually treated as a taxable P11d benefit in kind for most employees in most instances, although there may be an exception for those with a ‘proprietorial interest’ in the company.
However, as Group Income Protection is paid for by the employer and employers can reclaim corporation tax on premiums for a policy, the benefit is typically taxable on a claim.
Income Protection benefits intended for the employee are first paid out as a salary continuance to the employer. The employer will then transfer this payout to the employee in need via the PAYE system. It is during this process that the insurance benefit will be taxed in the same way as the employee’s standard income.
When it comes to taxation of Group Income Protection, the best course of action is to check with your local inspectorate of taxes to determine how premiums will be treated for tax purposes.
How much does Group Income Protection cost?
There are a range of factors that will affect the cost of your company sickness insurance policy. While it is possible for you to reduce the cost by making decisions about the level of cover to provide, there are some factors that cannot be controlled.
Level of Cover/Salaries
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.
Also, given that the benefit paid is a proportion of employees’ salaries, if you have a large number of high-earning employees your premiums will likely be higher because they’ll be receiving a larger benefit should they claim.
As with any protection policy, age can be factor into the cost. We all know that 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 your workforce is comprised of a majority of people that are older, the premiums are likely to be higher compared to a company with a younger workforce.
Number of Members
The size of your company and the number of people that you would like to cover with your Income Protection Insurance scheme will always affect the cost of your policy. The more people you want to cover with the policy, the more you will have to pay in premiums.
Different occupations can pose different health risks for employees that may make them more likely to claim on your company policy. Some industries are more susceptible to stress and mental health conditions while others tend to have more physical risks. The more likely it is that employees will be injured at work or need to take some time off, the more you will need to pay in premiums.
Another factor that will impact the cost of premiums is where an employee is based permanently for work, or if they frequently travel to certain places as part of their job. These include high-risk countries with areas of internal/political conflict etc. Living in or travelling to such countries will increase the cost of premiums.
Compare UK’s Best Group Income Protection Providers
It’s not as easy to compare Group Income Protection policies as it is to compare some other types of protection insurance. This is because the price is highly dependant on the group you’re covering and the policy options you choose.
Legal & General
At Drewberry, we work with all the best group income protection providers and working on your behalf can get all your quotes and provide a recommendation of the best options based on the needs of your business. Just pop us a call on 02084327333 if you want us to help out.
Samantha Haffenden-Angear, Cert CII
Independent Protection Expert at Drewberry
Get Expert Group Income Protection Advice
With our expertise in the group insurance industry and your knowledge of your organisation, together we can design the most appropriate group income protection cover for your employees and ensure the most competitive premium from the leading insurers across the UK market.
If you are looking to implement a Company Income Protection scheme or review an existing arrangement then we are in a great position to help you. Simply give us a call on 📞 02074425880 or email firstname.lastname@example.org.
Employee Benefits Expert at Drewberry
Why Work With Drewberry™?
- We placed over £1 billion worth of risk with insurers for our clients in 2017
- We were nominated for Protection Intermediary of the Year at the Protection Review Awards in 2016, 2017 and 2018 and the Cover Excellence Awards in 2016 and 2017
- Our ethos is to provide the best possible service demonstrated by the growing number of 5-star rated reviews with 98% of our clients saying they would recommend us
- Tom and the rest of our insurance experts are frequently quoted in leading papers such as The Independent and Financial Times with a reputation in the media as an authority in our industry.