Updated 24 June 2022
Group income protection is an insurance policy offered by some employers to their staff. It pays out if an employee’s wellbeing deteriorates to the point at which they can’t work. If you’re an employer, here’s what you need to think about if you’re considering group income protection insurance.
Group income protection is insurance that gives employees financial support if they are off work for a long time due to illness or injury. It can also cover employers against the cost of temporarily replacing the absent employee.
These policies often include rehabilitation services to help employees return to work. Services like wellness support, counselling and training also come as value-adds, helping to prevent health issues or intervene early before significant time off is needed.
Income insurance has benefits for employees and employers:
Employers own and pay for group income protection policies. As an employer, you’ll pay an agreed-on premium every month, and make a claim when your employee becomes ill or injured and is unable to work. Importantly, you or your company will receive the pay-out, not the employee. It’s up to you to process the payment through your PAYE system and then deliver the appropriate payment to the affected employee.
An employee has to be unable to work due to illness or injury for a certain period of time before any claims are paid. This is known as the deferred period, or waiting period. For group income insurance, the deferred period can be anywhere from seven days to 12 months. Employers choose the length of this period; the longer it is, the lower the monthly premium will be.
What’s covered by your policy depends on the scheme itself, but basic-level policies offer a set of fundamentals (to a maximum limit). These include:
In addition to cover, some insurance providers offer additional features, including:
Group income insurance policies are highly flexible. How your policy works, and how much you pay in premiums, depends on your preferences.
When selecting the type and level of cover needed, you need to decide:
Insurance providers will use this information to compile quotes for you. An independent financial adviser (IFA) can also help you assess your business’s needs and so find the right type and level of cover.
Like any insurance, you could pay your premiums for years but never need to claim. That said, it’s worth bearing in mind that merely having the insurance in place is the main benefit to you as employer, since it will help you attract the best people.
The disadvantages for employers include:
Disadvantages for employees:
When selecting a provider, make sure you ask them for their definition of incapacity. Each policy has its own criteria for what qualifies as ‘unable to work’, so you’ll want to check on that to ensure your workforce is appropriately covered.
There is a difference between critical illness and income protection. Critical illness cover will pay out a lump sum and then cease, only allowing you to claim once. Income protection offers a monthly benefit and the option for multiple claims.
HMRC doesn’t treat group income protection policies as a P11D benefit. Monthly premiums, however, qualify as an allowable business expense and so are tax-deductible.
Policies offer full term of short term pay-out options. Full term pays out until the employee can go back to work. Short term pays out for a limited time. You can make multiple claims on each option.
State benefits like Employment and Support Allowance (ESA) don’t affect claims on your group income insurance plan, because they’re funded by your National Insurance contributions. Statutory Sick Pay (SSP) can be paid for up to 28 weeks (or around six months) from illness. Most employers set their group income insurance policy deferred period at six months, so SSP will be unaffected.
Generally not, but do check with your policy provider.