What Is Group Income Protection? Do We Need It? How Much Does It Cost?

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Group Income Protection Insurance pays your staff a proportion of their income each month if they’re off work sick.

  • Protects against any illness or injury stopping an employee from undertaking their job role.
  • It works alongside and complements your company’s sick pay policy.
  • You can cover up to 80% of employees’ salaries.
  • The business owns and pays for the policy on behalf of its workers.
  • Additional services are often available to help manage sickness absence more effectively.
  • Supports your workers through an emotionally, physically and financially difficult time.

Group Sick Pay Insurance is a valued employee benefit which can act as an important way to retain existing staff and attract new workers.

Why Does A Business Need Group Income Protection?

According to the Office for National Statistics (ONS), illness or injury caused 141.4 million lost working days in the UK in 2018. This equates to around 4.4 days per worker.

While most employees are understandably worried about serious illnesses, especially those such as cancer and heart attacks, it’s less critical conditions that most commonly keep staff off work.

The top cause of sickness absence in 2018 was “minor illnesses” says the ONS. These caused 27.2% of absences and consist of coughs, colds, flu, sickness, nausea and diarrhoea. Next in the list were:

  • 19.7% – Musculoskeletal problems (for example, bad backs)
  • 13.7% – ‘Other’ conditions (for example, accidents, infectious diseases, skin disorders and diabetes)
  • 12.4% – Mental health conditions
  • 6.1%. – Gastrointestinal problems

Both mental heath conditions and musculoskeletal problems are in the top five causes of sickness absence. These can be long-term conditions requiring weeks or even months off work. This is despite them not being as ‘critical’ as a heart attack or cancer diagnosis.

Group Income Protection vs Statutory Sick Pay

Most workers are entitled to Statutory Sick Pay (SSP) if they’re off work ill for 4 or more consecutive days.

This is a benefit paid by you, the employer, for up to 28 weeks.

To be eligible, a worker must:

  • Be earning at least £120 per week
  • Be classed as an employee and have done at least some work for the employer.

The standard rate of SSP is £95.85 per week. Clearly, this is only a minimal figure that would see most workers struggle financially.

Supplementing SSP With Group Sick Pay Insurance

Employers who want to further support staff will often supplement SSP with some form of occupational sick pay. This might be a set number of days, weeks or months at full pay.

Group Sick Pay Insurance is designed to complement this, kicking in after the end of occupational sick pay to support those off work in the longer term.

Benefits For Employers

According to Investors in People…

  • Almost 1 in 5 UK employees are unhappy in their job due to a lack of benefits.
  • 44% of UK workers consider employee benefits to be one of the most important factors that attracts them to a new role.

Offering Income Protection provides staff with the clear signal that you value them and are there to support them when they need it most.

Furthermore, an impressive employee benefits package can:

  • Attract new employees
  • Improve employee retention and engagement
  • Reduce stress
  • Manage staff absences.

Employee Sickness Insurance: A Cost / Benefit Analysis

With Group Income Protection, there’s a particular focus on managing absences before they turn into claims.

Early intervention programmes work alongside Company Sick Pay Insurance to provide tangible benefits. This might include:

  • Access to telephone / face to face counselling sessions for those with mental health claims
  • Physiotherapy sessions for musculoskeletal claims.

The aim is to get workers back on their feet and back to work faster than would be the case otherwise, all for free with the policy. This can help reduce financial strain on both staff and the business.

Moreover, it can prevent an employee from ever needing to make a claim in the first place.

Where an employee does need to make a claim, given the cost of Group Income Protection per employee (see below), and given that a policy can pay out up to 80% of salary should an individual become too ill to work, you can see how cost-effective a policy can be even after just a year of having it in place.

Benefits For Employees

The UK is notably under-protected as a nation. Just over 1 in 10 UK workers has Income Protection Insurance according to our Individual Protection Survey. Moreover, when asked why this was the case, nearly 1 in 5 of those surveyed said they’d never heard of it.

Yet it’s a valuable benefit, offering income security no matter what the future throws at you. Having an employer introduce and pay for it could therefore be a significant weight off employees’ minds.

Furthermore, having Group Sick Pay Insurance means that staff don’t need to rely solely on minimal SSP should they be off work for a long period. This results in better financial outcomes for workers.

Also, the support services mentioned above can help assist staff with reducing the length of their illness, getting them back to work and earning again faster.

Additional Tangible Benefits

In addition managing sickness absence and replacing lost income if they are too ill or injured to work there are some really valuable everyday services which are often provided for free alongside the Group Income Protection:

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Can We Get Group Income Protection?

While it varies from insurer to insurer, you’ll typically need at least five full-time staff to get Group Income Protection.

To add employees to a group policy, they must meet some common minimum requirements:

  • Employees must be within the minimum and maximum entry age range for the policy
  • Staff must be eligible to work in the UK and have a UK working contract
  • They must be an active employee at the business providing the scheme.

If preferred, you can add additional stipulations before an employee becomes eligible for cover. For example, this might include working for the company for a set period or being above a certain pay grade / status within the firm.

Income Protection For Small Businesses

You may not have enough employees for Group Income Protection. If so, you could consider Executive Income Protection, which covers directors of small companies.

It has many similarities to Group Income Protection, including the fact that the business owns and pays for the policy. However, the insurer underwrites the policy individually rather than on a group basis.

This means that each individual applying for cover will need to answer medical questions before the insurer will cover them.

How Much Does Group Income Protection Cost?

There are a range of factors that will impact the cost of Group Income Protection. You can adjust some to manage the cost of cover. However, others are fixed and can’t be changed.

Key Adjustable Policy Options

  • Level of Cover
    Most insurers allow you to protect between 50%-80% of gross salary. The more of your workers’ salaries you wish to cover, the more Income Protection costs.
  • Deferred Period
    The deferred period is the time that passes between an employee first being off sick and the insurer paying a claim. The typical deferred period starts at 13 weeks and employers usually align this with any sick pay they offer. The longer the deferred period, the lower the monthly premiums.
  • Length of Payout
    The payout can be limited to 1, 2 or 5 years or until retirement age. The longer the benefit payment period, the higher the cost of premiums.
  • Include National Insurance and Pension Contributions
    In addition to gross salary you can opt to cover employer National Insurance and employer pension contributions. These options will increase the cost of cover. 
  • Premium Frequency
    You can usually get a small discount if you’re able to pay your premiums annually rather than monthly.

Factors You Can’t Control

  • Age
    The older your workforce, the more likely they are to suffer illnesses and injures and the more expensive your premiums will therefore be.
  • Industry and Occupation
    There are some industries which are considered higher risk. For example, builders are more at risk of suffering an on-the-job accident than a desk worker. Industries which pose a higher claims risk have higher premiums per employee.

The Importance Of ‘Own Occupation’ Cover

Opting for Own Occupation cover ensures your staff can make a claim should accident or sickness prevent them from doing their specific job.

There are alternative, lesser definitions; however, we don’t typically recommend these, which are laid out briefly below.

  • Suited Occupation
    The employee must be incapable of carrying out the duties of their own occupation or any other job they are qualified for.
  • Activities of Daily Living
    The employee must be incapable of completing a certain number of everyday tasks such as climbing stairs or signing their name. This is the hardest definition for your staff to make a successful claim on, so we tend to say it’s best you avoid it.

Example Cost Of Company Sickness Insurance

Below is an average cost of Group Income Protection for two different businesses. However, these are only designed to give a rough idea of the cost of cover. For personalised quotes for your company, don’t hesitate to get in touch. You can reach us on 02084327333 or email help@drewberry.co.uk.

Construction Company

Bakery Company



Milton Keynes

Number of Employees



Level of Cover

50% of Salary

75% of Salary

Payment Period

2 Years

2 Years

Policy Cease Age

65 / State Pension Age

65 / State Pension Age

Deferred Period

4 Weeks

13 Weeks

per employee

per month

per month

How Is Group Income Protection Insurance Taxed?

HMRC taxes Group Income Protection differently from personal Income Protection.

You pay for personal Income protection from net income, i.e. income that’s already had tax and National Insurance deducted. Insurers therefore pay claims tax-free on personal policies.

However, as Group Income Protection is paid for by employers, who can usually write off the cost against corporation tax, HMRC taxes Group Income Protection when a claim is made.

The insurer pays the claim to the employer should a worker fall ill. The employer then distributes the funds to the worker in the appropriate manner, typically through PAYE. The PAYE system deducts tax accordingly.

Is Group Income Protection a P11D Benefit in Kind?

It is not normally considered a P11D / benefit in kind. There’s therefore no additional tax to pay in most circumstances from an employee’s standpoint.

Who Are The Best UK Group Sick Pay Insurance Providers?

We are an independent employee benefits adviser who has access to all of the best UK Group Income Protection providers. No two are the same and some suit particular sectors or businesses better than others.

For all our clients we regular review the market to ensure they have the most fitting and cost effective policy for their employees.

Policy Details & Additional Benefits
AIG offer competitive premiums, particularly for smaller businesses, as well as Smart Health, an innovative health and wellbeing app. Rated 4 / 5 stars on independent reviews website Trustpilot.

AIG Additional Benefits

Aviva is a household name whose settlement of Group Insurance claims is among the fastest in the UK market.

Aviva Additional Benefits

  • 24 / 7 telephone counselling and online mental health resources
  • Mental wellbeing app (Thrive)
  • Cancer support service for cancer claims
  • Clinical and vocational rehab support to provide early intervention and improve speed of recovery
  • Musculoskeletal therapy service, offering workplace ergonomic assessments and physiotherapy for employees with musculoskeletal claims
  • Gym membership discount
Canada Life
Canada Life has 40 years’ experience in the group risk market. Today it protects almost 3 million employees across 21,000 companies nationwide.

Canada Life Additional Benefits

  • EmployeeCare, providing face-to-face, telephone and email counselling, legal and medical advice
  • 24 / 7 health and wellbeing helpline staffed by nurses
  • Absence management for employers, offering a helpline staffed with registered nurses, occupational therapists and vocational rehab consultants to speed return to work
  • Second medical opinion service
  • BusinessCare, a 24 / 7 online and phone-based legal advice service from qualified solicitors for employer legal matters
Legal and General
Legal & General is a household name offering competitive premiums and a market-leading rehabilitation support service. Rated 3.4 / 5 stars on independent reviews website Trustpilot.

Legal & General Benefits

  • 24 / 7 Counsellor Telephone Support Service
  • Trained Nurse Medical Advice Helpline
  • Legal Advice Service
  • Structured counselling, providing up to eight counselling sessions face-to-face, online or via phone
  • Online cognitive behavioural therapy supported by mentoring from qualified counsellors
Unum is a leading employee benefits provider, protecting more than 1.4 million people in the UK. In 2018, it paid claims worth £314 million.

Unum Benefits

Unum’s additional are known as the Help@hand service and includes:

  • Remote GP service
  • Second medical opinion service
  • Mental health support program
  • Physiotherapy sessions

How Does Group Income Protection Fit With an Employee Benefits Package?

Group Income Protection isn’t always the first benefit companies introduce — this tends to be reserved for Group Life Insurance or Business Private Health Insurance.

However, it’s beneficial for employees, providing them with extended sick pay cover. Meanwhile, employers also benefit. This is through absence management tools and other helpful additional benefits designed to speed employees’ return to work and reduce the burden of sickness absence on the business.

Group Income Protection and Company Sick Pay

Group Income Protection is designed to work alongside your company’s sick pay policy.

It kicks in after any period of full sick pay your company offers lapses to provide fuller and more extended coverage than perhaps you’d be able to afford as a business without insurance.

Group Income Protection can also step in to act as an alternative to Statutory Sick Pay. SSP is the minimum amount you are legally obliged to offer employees for up to 28 weeks.

You could therefore discharge some of this liability after the end of the deferred period by having Group Income Protection cover your workers instead of Statutory Sick Pay.

Group Income Protection vs Group Critical Illness

Group Income Protection pays out a regular monthly income if an employee falls ill. This can be for any medical reason that warrants time off work, from a bad back to a more severe condition such as cancer.

Group Critical Illness Cover, on the other hand, only pays out once. This is a single lump sum.

Also, the worker needs to be critically ill to make a claim under a Group Critical Illness policy. The policy terms define critical illnesses, which are usually limited to very serious diseases. For example, cancers, heart attacks and strokes are the top reasons for a Critical Illness Insurance claim.

Meanwhile, top claims on Group Income Protection policies include mental health conditions and musculoskeletal problems.

Other Employee Benefits

As well as Group Income Protection, many companies consider:

  • Death in Service Insurance
    Pays out a lump sum if an employees passes away while working for your organisation.
  • Group Critical Illness Cover
    Pays out a lump sum if a worker suffers a critical illness while working for your organisation.
  • Corporate Health Insurance
    Pays for private healthcare in facilities across the UK, offering faster access to medical treatment than the NHS can provide in many cases.

Client Story: Meet Profile Pensions

Profile Pensions introduced a Death in Service scheme for their workforce and feel it’s made a real difference.

Our employees get comfort from knowing it’s there and we’re proud to provide that,” says Michelle Donlin, Profile Pensions’ HR and Office Manager. “We work hard to provide good benefits to our staff and show a commitment to our employees, so introducing employee benefits was really a logical step.”

George Hay, an employee for 3 years, agrees. “I’ve just had a child, so it means a lot to have that peace of mind that if the worst happens, my family will be supported with four times my annual salary. It’s not something I hope will ever be needed, but it does take a big worry away for me.”

Profile Pensions Group Life Insurance
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Frequently Asked Questions...

  • Can Employees Claim Employment And Support Allowance (ESA) With Income Protection?

    In most cases the answer is yes, you can claim both.

    This is because ESA is usually contributions-based rather than income-based. This means it’s based on your National Insurance contributions record over time rather than your earning capacity.

    However, in some cases ‘old-style’ ESA can be income-based. If there is any doubt about which one you qualify for and whether it will impact your Group Income Protection claim, you should clarify this with your local Job Centre Plus or the Department for Work and Pensions.

  • Does Group Income Protection Come Under TUPE Rules?

    Group Income Protection falls under the TUPE rules. You will usually therefore have to transfer the benefit over if you take over a business where the employees had Group Income Protection prior to the takeover.

  • Do Employees Require A Medical?

    With Company Sick Pay Insurance, so long as the employee’s level of cover is below the scheme’s free cover limit they will not require any medical underwriting. This means no medical questionnaire and no medical.

  • Is Group Income Protection Taxable?

    Yes, HMRC typically taxes the benefit from Group Income Protection on a claim.

    The insurer pays the claim to the company, which then distributes it to the employee, usually via PAYE. The funds are then taxed in the normal way through this system.

  • Does Income Protection Cover Dismissal?

    No, it doesn’t.

    Group Income Protection is only designed to cover illness or injury that prevents you from working. It does not cover redundancy, dismissal, being fired or failing to pass a probationary period.

    It’s worth understanding that, once a staff member leaves the company offering them Group Income Protection, their cover ceases. It may therefore be prudent for staff to consider some form of personal protection that isn’t tied to their workplace.

  • What Does Income Protection Insurance Cover?

    Income Protection is designed to cover anything that medically prevents your employees from doing their job.

    This could range from anything such as musculoskeletal problems (e.g. a bad back) to something more serious, such as cancer.

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