Group Income Protection: why should employers buy it?


GIP - Why should employers buy it.jpg

We take a look at the employee and business benefits employers will see when they invest in group income protection insurance.

These points explore why employers should buy group income protection

Group income protection insurance is an employee benefit that provides a replacement income to an employee should they be unable to work due to illness or injury for a prolonged period. Typically the insurance pays a percentage of the employee’s pre-disability salary, such as 50% or 75%.

Payments begin after an employee has been absent for work for a defined period. Most employers choose six months as this coincides with how long UK statutory sick pay is paid. The payments will continue until either the employee is well enough to return to work or they reach the end of the payment period insured under the policy. This may be a fixed number of years or until the employee reaches State Pension Age.

Because the loss of a regular income for a prolonged period can have a catastrophic impact on a person’s finances, group income protection insurance is seen as a core employee benefit. One which offers long term financial security.

Here are some of the most compelling reasons why employers should consider providing this benefit to their staff:

It helps to attract and retain the best talent

Companies of all sizes are constantly under pressure to ensure they have the best talent within their business. This requires innovation in a competitive employment market. Group income protection is commonly provided by large employers on a company paid, compulsory basis. It offers long-term financial security and is therefore valued highly by employees as the equivalent individual insurance is often quite expensive. For SMEs, providing this benefit can be an important tool in attracting new employees many of whom may already have this benefit at their current employer and may not want to give it up.

Employee peace of mind

In many cases if employees on sick leave do not receive the additional help and support provided by the insurer’s case management service at an early stage of their absence, this can significantly delay their return to work and cause longer term financial issues.

For those still absent after 28 weeks when statutory sick pay ends, many employers do not provide any further financial support. So all income stops for the employee, leaving them to survive on state benefits. This is where group income protection benefits kick in, providing valuable long term financial security and peace of mind for employees.

Doing the right thing

Employers should be prepared for how they would support an employee who is absent from work for a prolonged period and in some cases permanently absent. Commonly in small businesses the employee may be a close personal friend or colleague. This scenario will impact how other employees view their employer.

Continuing to pay a salary to the employee is likely to be unaffordable for the business. Yet leaving the employee to manage on state benefits is not easy either. By providing group income protection insurance the employer can continue to provide a regular income to the employee. This runs alongside vocational rehabilitation to help the employee manage their condition and hopefully achieve a successful return to work.

Business benefits

While many SMEs are unlikely to provide financial support to an absent employee after the statutory sick pay period, some employers would continue to pay some of the employee’s salary when faced with such a situation, despite not having insurance in place. By effectively self-insuring, these businesses are taking a significant financial risk which can be removed with group income protection insurance.

Furthermore, the rehabilitation services offered by insurers provide practical help, support and guidance to employees from a very early stage of the absence. After devising a return to work plan, they will arrange and fund appropriate treatments and support the employee on their journey back to work. Such proactive intervention not only benefits the employee, but it also gets them back to work sooner; benefitting the employer too.

More reasons to consider group income protection insurance:
  • It’s cost effective. The cover is typically cheaper than an individual insurance policy that an employee could buy for themselves privately.
  • Extra support services are often available free of charge. As well as proactive, early intervention services, providing ongoing rehabilitation, many policies also provide access to employee assistance programmes which offer advice, information and support to all employees in the organisation. This can include information about legal or financial matters, or face to face counselling to deal with a recent bereavement for example.
  • Employees do not need to answer any medical questions. As the insurance covers all employees in the organisation, or within a clearly defined group or management grade, in most cases individual employees do not need to complete medical questions.
  • Premium payments are usually tax free. Premiums which are paid by the employer are not P11D benefits for the employee, and they can be treated as a business expense for corporation tax purposes. However, if set up in a flexible and voluntary scheme, where the employee pays for the benefit themselves, premiums will be subject to income tax and national insurance contributions.
  • It’s simple to administer. Once set up, the employer only needs to provide routine membership data to the insurer a few times a year at most. With AIG Life, all policies are administered online for additional convenience.

In a nutshell

Group income protection insurance provides long term financial security to employees; protecting them against the very real risk of being unable to work due to illness or injury. Cover is simple to set up, cost effective and usually no medical questions will be asked of employees. Claimants will receive ongoing rehabilitation throughout the duration of their absence, often starting long before benefit payments begin.

Although the insurance provides peace of mind and financial security to employees, it is increasingly seen as an employer benefit too. Such is the focus on proactive rehabilitation to return employees back to work as soon as possible, mitigating the impact and cost to the business.