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Group Income Protection Insurance
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Get My Quotes09/11/2023
9 mins
Group Income protection is a valuable addition to any employee benefits package. For employees, it can help to relieve financial pressures and reduce money related stress.
Not only this, but it can help boost their engagement and productivity. So what exactly is it? And what makes it so valuable?
In our below guide, we’ll talk you through everything you need to know about Group Income Protection. What it is, how it works and why as a business you should consider putting a policy in place.
What Is Group Income Protection Insurance?
Group Income Protection pays a monthly income to an employee if they can’t work due to illness or injury. This could be something physical, such as a bad back, or mental health problems, like stress or depression.
As a benefit Group Income Protection:
- Protects against any illness or injury which stops an employee from working
- Works with and complements an employer’s sick pay policy
- Covers up to 80% of employees’ salaries (dependent on insurer)
- Is owned and paid for by a company
- Covers company National Insurance Contributions and your staff’s pension contributions
- Supports staff through what could be a difficult time.
Why Is Group Income Protection Important?
Group Income Protection is incredibly important for businesses to have. According to The Office for National Statistics (ONS), illness or injury caused 185.6 million lost working days in 2022. This equates to around 5.7 days per worker.
While most employees are understandably worried about serious illnesses, it’s actually less critical conditions that most commonly keep staff off work.
The ONS says the top cause of sickness absence in 2022 was “minor illnesses”. These caused 29.3% of absences and consist of coughs, colds, flu, sickness, nausea and diarrhoea. Rounding off the top five causes are:
As an employer, you don’t have a crystal ball, so it’s impossible to fully plan and budget for sickness. With Group Income Protection, you know that your business could cope financially if an employee were to go off with long term sickness.
Statutory Sick Pay Isn’t Enough…
It’s not just important for you as an employer either. Most employees are entitled to Statutory Sick Pay (SSP) if they’re off work ill for 4 or more consecutive days. As an employer, you pay this for up to 28 weeks.
However, the standard rate of SSP is £109.40 per week. When you compare this to your staff’s salaries, it’s a small amount and most would struggle financially if they were off work. This is exactly why financial protection is essential.
Plenty of businesses provide Group Life Insurance to their staff. Although this is a great benefit, people are more likely to be absent due to illness than to pass away while working for you.
With this in mind, you can start to see just how valuable Group Income Protection can be.
Nick Nelms
Senior Consultant, Employee Benefits
UK employees are known to be under-protected. Leading insurer Liverpool Victoria found only 15% of working adults had Income Protection (IP). We also discovered in our 2023 Employee Benefits survey that just 4% get Income Protection from their employer. This is despite the fact that 18% of employees listed it as a benefit they would like to receive.
By offering such a benefit, not only will you provide employees with a benefit they actually want, you will provide them with peace of mind. They will know that if they are unable to work due to sickness or injury they could cope financially.
5 Minute Video Guide To UK Group Income Protection
Not got enough time to read our guide, but want a quick expert overview of Group Income Protection? Our very own Nick Nelms, gives us the rundown on what you need to consider before buying a policy. Just hit play! 👇
How Does Group Income Protection Work?
As an employer, you would own and pay for a Group Income Protection policy. Once a policy is live, if an insured member of staff is unable to work due to sickness or injury, after a set amount of time (deferred period), the policy would start to pay out a monthly benefit.
This monthly benefit would be paid to you the employer, to then pass on to the employee via payroll. When the benefit gets paid, the level of it and how long it gets paid for, will all depend on the policy options you chose when setting up a policy. It’s important to note that adjusting these options will impact the cost of your policy.
Your Policy Options
The options that you will need to consider when taking out a policy include:
- Level of cover
One of the first things you will need to consider is how much protection you want to provide. Most insurers allow you to protect between 50%-80% of an employee’s gross salary. - Deferred period (or waiting period)
The deferred period is the time between an employee first being off sick and the insurer paying a claim. In the UK, 13, 26 or 52 weeks are the most common periods for a group policy. It’s a good idea to align your deferred period with any existing sick pay policy you have. So a policy would kick in once an employee’s sick pay ends.
- Length of payout
The benefit length is the amount of time a policy will pay out for if an employee makes a claim. You can choose from shorter term options which would pay out for 1, 2, 3 or 5 years. Or, you can set your policy so that the benefit amount would continue to retirement age. - Indexed Linked Cover
Some policies will allow you to link your policy with inflation. This helps to protect the value of the benefit so that it is just as valuable in the future as it is now. - National Insurance & Pension Contributions
You will also have the option to cover long-term benefits within a policy. For example, you can make sure that a policy would still cover National Insurance and pension contributions.
The Difference Between Own Occupation, Suited Or Any
Another important factor to consider when setting up a policy is the definition of incapacity used. You’ll see 3 definitions of incapacity: Own Occupation, Suited, or Any.
These refer to an individual’s inability to work. The definition you choose will impact whether a policy pays out or not, so it’s vital to understand how they differ.
- Own Occupation
Pays out should an employee suffer sickness or injury that prevents them from working in their own occupation
- Suited Occupation
To claim, the employee must be incapable of doing their own occupation or any other job they’re qualified for - Any Occupation
This means an employee must be incapable of completing a number of everyday tasks, such as climbing stairs or signing their name, to claim. This is the hardest definition to claim on.
At Drewberry™, we recommend clients opt for Own Occupation as it’s the most comprehensive.
It ensures your employees can make a claim should an accident or sickness prevent them from doing their specific job. This is the ‘easiest’ definition to make a claim on, as staff only need to be incapable of doing their own role.
Joseph Toft
Senior Consultant, Employee Benefits
What Do Group Income Protection Policies Cover?
To put it simply, Group Income Protection will cover any long-term illness or injury that prevents an employee from working.
However, as mentioned above, what a policy includes will depend on the level of cover you choose. Not only this, each provider will offer slightly different things, however most will offer:
- Cover for up to 80% of an employee’s gross earnings (dependent on insurer)
- A benefit paid up until State Pension Age, or limited to 2, 3 or 5 years
- The option to index link the policy to ensure the benefit aligns with inflation
- Long-term benefits, such as cover for pension contributions
- The option to allow benefits to continue for employees after they leave the company.
Additional Benefits From Sickness Insurance Providers
On top of core cover, some providers will also offer a range of additional extras. Some of which will be free, some of which you can add for an additional premium.
Group Income Protection policies often have a strong focus on managing sickness absence before it reaches a claim. Some insurers provide early intervention programmes and rehabilitation services as a result.
Managing a health concern before it progresses is key here. The longer someone has off work due to ill-health, the harder it is for them to return. Intervening early can help to reduce the likelihood of long-term absence, or in some cases, prevent absence at all.
You might find the following services included on the policy:
- Access to telephone / face-to-face counselling sessions for mental health claims
- Physiotherapy sessions for musculoskeletal claims
- Employee Assistance Programmes (EAPs) and return to work support
- 24/7 Digital GPs—read our director’s experience of this service
- Nutrition and fitness programmes.
These forms of support aim to get workers back on their feet and return to work at a quicker pace.
Most importantly, staff can use these before they need to make a claim. This can prevent illness from escalating to the point where an employee takes time off.
As these services tend to be free, providing this support comes at no extra cost to you as their employer.
It’s a win-win situation for your business and your workforce. Group Income Protection can help to reduce financial strain for staff. But it also helps you to reduce absenteeism.
Joseph Toft
Senior Employee Benefits Consultant
What Are The Benefits Of Group Income Protection?
Group Income Protection Insurance comes with a number of benefits, not just for your employees but for you as an employer too. We outline what these are below.
Benefits For Employers
By providing your hard-working staff with Group Income Protection, it shows you value them and are there to offer support when they need it most. As a result, it can:
- Improve employee retention and engagement
- Boost morale and productivity in the workplace
- Reduce stress-related illnesses
- Manage sickness absence
- Attract new employees.
Not only this, a Group Income Protection policy offers tax relief, as it’s classed as an allowable business expense in the eyes of HMRC. We explain this a little more later.
Benefits For Employees
Group Income Protection is highly valuable for your staff. It offers employees financial support should they need to take time off work if they suffer an illness or accident.
Income Protection (IP) also provides:
- Regular income even if the employee is off work sick or injured
- Support with rehabilitation and return to work
- Wellness support services / early intervention.
If a member of staff is unwell enough to take time off work, it can easily lead to financial hardship. Group Income Protection can help limit financial burden and their money worries.
Staff also don’t need to rely on SSP, which is often a minimal amount compared to their earnings.
How Much Does Group Income Protection Cost?
There are a handful of factors which will influence the cost of Group Income Protection. Some of which can be adjusted to manage the cost, while others are fixed and can’t be changed.
It’s worth noting that you may not be able to get quotes easily online for this type of protection. This is because group policies are complex and dynamic.
Policy Factors Impacting Cost
There are some policy factors which we have touched upon above that you can choose when taking out a policy. Adjusting these options can impact the price you pay for premiums. For example, you can reduce the cost by:
- Choosing a longer Deferral Period
- Reducing the level of cover
- Opting for shorter a payout length
- Excluding National Insurance & Pension Contributions
- Not indexing cover.
EXPERT TIP 🤓
You can usually get a small discount if you’re able to pay your premiums annually rather than monthly.
Policy Factors You Can’t Control
Unfortunately, there are some factors that will impact cost that are simply out of your control. These include:
- Age
The older your workforce, the more likely they are to suffer illnesses and injuries, and the more expensive your premiums will be - Industry and occupation
There are some industries which are considered higher risk. For example, builders are more at risk of suffering on-the-job accidents than an office worker. Industries which pose a higher claims risk have higher premiums.
Example Group Income Protection Costs
To give you an idea of cost, we’ve calculated the average price of Group Income Protection Insurance for two different employers.
These are only designed to give a rough idea of how much premiums could be. But the quotes below are a great example of how much it may cost you as an employer to provide Income Protection.
For personalised Group Sickness Insurance quotes for your business, don’t hesitate to get in touch. You can reach us on 02084327333 or email help@drewberry.co.uk.
Construction Firm | Bakery Firm | |
|---|---|---|
Location | Wales | Milton Keynes |
Number of Employees | 10 | 100 |
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 | 8 Weeks | 13 Weeks | Cost | £8.90 | £6.26 |
Quotes accurate as of July 2023
Is Group Income Protection Taxable?
Employers will find that HMRC taxes Group Income Protection differently to personal Income Protection.
Businesses can offset the cost of premiums against their corporation tax bill. So you’ll receive a lower tax bill. HMRC also doesn’t view Group Income Protection as a P11D / Benefit-in-Kind. This means there is no additional tax to pay with this type of cover.
Is Tax Payable On The Benefit Amount?
Should an employee make an Income Protection claim, the benefit is paid to the employer tax free. The employer is then required to pass the funds on to the employee. The benefit is typically paid through PAYE. Therefore, it’s liable for tax, just like the rest of their monthly income.
Group Income Protection FAQs
Is Group Income Protection Mandatory In The UK?
To put it simply, no. Group Income Protection is not a mandatory employee benefit in the UK. Employers must pay Statutory sick pay, but anything above this is voluntary. For example, some employers choose to supplement statutory sick pay with company sick pay. This might be a specific number of days, weeks or months at full pay.
Group Income Protection is another voluntary option that employers tend to include so that once their company sick pay ends, a policy kicks in. This is to ensure that they can continue to provide financial security to employees until they fully recover.
Are There Any Eligibility Requirements?
Yes. The employer will have to agree what the eligibility conditions are with the insurer. Typically, these will be factors such as:
- Minimum / maximum entry ages
- Categories of members to be covered
- Any level of qualifications you think should apply
- When new employees can join the scheme (e.g. after their probationary period
- When existing members can increase their benefit.
Who Pays For A Group Income Protection Policy?
As an employer, you pay for and own a Group Income Protection Policy. In the event that an employee needs to make a claim, the benefit amount would be paid to your business. You would then pay the benefit on to the employee via payroll.
How Do You Make A Claim?
For an employee to make a claim on your company Income Protection, you need to submit a claims form. Both the employee and employer sections of the claims form must be completed.
Make sure you have the necessary documentation to hand when going through the claims process. This might be correspondence from the employee’s GP, test results, or GP fit notes, for example.
The claims form can be downloaded from the insurer’s website, or you can make a claim online.
As soon as it’s clear that an employee will be off work for longer than the deferred period, contact the insurer. The insurer can then get the ball rolling, so funds can be paid immediately if the worker is still off after the deferred period.
Does Group Income Protection replace Statutory Sick Pay?
All UK employers are obliged to offer Statutory Sick Pay (SSP) if an employee is off sick. Eligible staff must earn an average of at least £123 a week and have been off for 4 consecutive days or more, including non-working days.
If you don’t have a company sick pay policy or an insured option, SSP is provided. This is payable by the employer for up to 28 weeks of absence.
If an employee needs more than 28 weeks off, Group Income Protection can act as a continuation of their sick pay.
Most of the time, the minimum deferred period on Group Income Protection is 13 weeks. You won’t be able to get an insurance policy that pays out sooner than this. This means you’d have to pay at least SSP for that 13-week period.
Once the Income Protection monthly benefit kicks in, you no longer have to pay SSP because the policy takes over your obligation to pay.
Can Employees Still Claim ESA With A Group Income Protection Policy?
One question we get asked a lot by our clients is if employees can claim Employment & Support Allowance (ESA) at the same time as Income Protection. This is one of the main government incapacity benefits they offer.
In most cases, employees can still claim ESA. However, we advise checking how it will interact with the benefit they receive from the IP policy.
It’s possible that the insurer will reduce the payout to align with what ESA the individual is receiving. If there’s any doubt about eligibility or how it will affect a claim, it’s best to clarify with JobCentre Plus or the Department For Work & Pensions.
Is Group Income Protection Insurance a P11D / Benefit In Kind?
No, Group Income Protection is not considered a P11D / Benefit in Kind. This means there’s no additional tax for an employee to pay due to the company paying for cover.
Can Group Income Protection cover pension contributions?
Yes, plenty of insurers can cover employee pension contributions, as well as employer National Insurance Contributions. This offers your business and staff an extra layer of monetary protection.
For these to be covered, you’ll need to choose the option when setting up the policy.
Will Group Income Protection pay out a lump-sum settlement?
In some situations, yes. It depends on the severity of the illness and how long an employee is expected to be out of work for.
An upfront lump-sum payment is possible, but this sits outside the standard terms of a group scheme. It’s best to speak to your insurer if this is something that is necessary for an employee.
Who Are the Best UK Group Income Protection Providers 2023?
Drewberry is an independent Employee Benefits brokerage, with access to all Group Sickness Insurance providers. Every insurer is different and no two are the same. Some suit particular sectors or businesses than others, for example.
With years of experience tucked under our belt, we have helped many businesses to set up their benefits. Our team works with every major insurer to provide you with a wide range of options and quotes. These insurance providers include:
- AIG
- Aviva
- Canada Life
- MetLife
- Legal & General
- Zurich
- Unum.
As we’ve said, each insurer is different. So, what’s best for your company might be different to what is best for another. Speaking to an independent financial adviser can help ensure you set up the right Group Income Protection for your business.
Need Sickness Insurance For A Single Employee Or Director?
To provide Group Income Protection to your workforce, you need at least 3 employees. But what if you don’t have 3, or you just want to insure a director? There is another option…
Executive Income Protection. This caters to directors, companies with under 3 employees, or a company wanting cover for just one worker. It is paid for by the employer on behalf of the employee and offers the same tax benefits as a group scheme.
For more information on Executive Income Protection, please don’t hesitate to get in touch. Pop us a call on 02084327333 or email help@drewberry.co.uk. One of our qualified experts will explain your options in a clear, understandable manner, so you don’t have to try to figure out the policies.
Compare Group Income Protection Quotes & Get Expert Advice
Employers have a lot of choice when setting up their company Employee Benefits. So much so, it can become a bit of a headache. Setting up group policies is a complex beast to tackle, as many business factors have to be considered.
At Drewberry, we do all the heavy lifting for businesses in the UK. It doesn’t matter if you’re a small business or a larger corporation, we can help set up and keep on top of the admin. Letting us, the experts, do all the nitty-gritty work means you can focus on doing what you do best—run a successful business.
If you’d like tailored advice on your employee benefits or need help setting them up, drop us a line on 02084327333 or email help@drewberry.co.uk, and we’ll get you started.
Why Speak to Us?
We started Drewberry™ because we were tired of being treated like a number.
We all deserve a first class service when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.
- We are award winning 🏆 independent insurance advisers who work with all the leading UK insurers
- You’ll speak to a dedicated expert from start to finish
- We are very proud of the 3640 and growing independent client reviews rating us at 4.92 / 5
- We are authorised and regulated by the Financial Conduct Authority. You can find us on the financial services register here 🧐
- Claims support when you need it most.
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