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Should I get group income protection insurance?

Updated 03 September 2020

4min read

Nick Green
Financial Journalist

Group income protection for your employees

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.

What is group income protection?

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:

For employers:

  • Competitive benefits package to attract and retain employees
  • Financial protection from long-term absences
  • Early intervention and prevention of employee health issues, minimising risk of long-term absence
  • A company culture that promotes health and wellbeing
  • Tax relief – current UK laws qualify premiums as an allowable business expense

For employees:

  • Continue to earn income during illness or injury
  • Support with rehabilitation, rapid recovery and return to work
  • Wellness support at work, to detect and prevent illness or injury before they become threatening

How do group income protection policies work?

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.

What is the deferred period?

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 does group income insurance cover?

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:

  • A percentage of your employee’s salary paid until they return to work, reach a specific age, or for a limited amount of time (e.g. two to five years)
  • The employer’s National Insurance contributions for that employee
  • Long-term benefits such as pension contributions
  • Short-term costs such as wages for temporary or replacement staff
  • Lump sum payment in the case of early retirement due to ill health
  • Initial or upfront lump sum payment if an employee has a heart attack, cancer or stroke and is unable to work for at least 14 days

In addition to cover, some insurance providers offer additional features, including:

  • Rehabilitation: Funded or fast-tracked physiotherapy and psychological treatment
  • Wellness training: On stress management, mental health, work-life balance or alcohol abuse
  • Counselling services, either face to face or over the phone

What group income insurance cover should my company get?

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:

  1. Who am I covering?
    You can cover all your employees or a clearly defined group, such as senior management. You can offer the same cover for all staff, or amounts tailored to different groups and ages (you’ll set the criteria).
     
  2. How long am I covering them for?
    You will have to decide if you want a cut-off age beyond which employees will no longer be covered. An obvious option is state pension age. You can also decide whether cover starts immediately, or after an employee has been with your company for a certain amount of time.
     
  3. What basic benefit do I want to provide?
    The benefit can be a percentage of their salary or a fixed amount.

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.

What are the disadvantages of group income protection policies?

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:

  • It’s an extra cost to cover
  • You can never miss a payment – if you do, cover lapses
  • You aren’t entitled to any refunds if you end the policy
  • Your pay-out can be delayed or rejected if you don’t claim within the specified time limits

Disadvantages for employees:

  • Because the employer decides the level of cover, there’s little to no control on individual coverage
  • Cover doesn’t continue after leaving the company

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.

FAQs on group income insurance

Is there a difference between critical illness cover and income insurance?

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.

Is group income protection a benefit in kind?

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.

How long does income protection pay out for?

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.

Do claims affect SSP or ESA benefits?

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.

Do my employees need to undergo a medical examination to be covered?

Generally not, but do check with your policy provider.

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About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.