Group Income Protection

This page was last reviewed on 1 April 2021

Group Income Protection In 2021 – Your complete guide

In the UK, out of the 24% of employees that would like to receive income protection, only 6% of employees receive it. Below, we tell you all you need to know about the group income protection scheme. This article will help you make the difficult decision about whether group protection is right for you.

Topics that you will find covered on this page

What is group income protection?

Group Income Protection (gip) gives employees that find themselves unable to work due to illness or injury a replacement income. It is salary protection insurance, taken out by companies as an employee benefit.

If an employee suffers a long term illness or injury and cannot return to work, the group income protection insurance will provide financial support.As an employer, it is a nice way of showing that you have your employees back. 

The income protection benefit is paid to employers, through the PAYE system. The employer can then pass the payment on to the member of staff. Group income protection is designed to offer support after sickness pay ends. 

What scenarios will be covered by group income protection?

Essentially, group income protection insurance will cover any kind of medical problem that leaves an employee unable to work, or unable to return to work. This could be a stroke, cancer, heart attack, or even a severe injury. 

Is stress covered under income protection?

Mental health conditions, such as stress, depression, and anxiety, are all covered under the income protection policy. 

Is dismissal covered? 

Dismissal/redundancy is unfortunately one of the areas not covered by the average group cover. Once you have handed in your notice and officially leave the office, you will lose all access to your group insurance cover. 

That being said, there are some cases where a client may be able to receive payments for an ongoing claim, even if the employer has to end their contract. This is sometimes called ‘pay direct’ and can give both parties the control to move on.

Here is a short video explaining how it works.

Are there any exclusions when it comes to eligible health issues?

Most insurers won’t cover pre-existing conditions. Therefore, if you have had a past diagnosis, especially if you received treatment, you might not be covered. 

The same is true for mental health conditions. If you had intervention, in the form of counselling sessions, for example, you might not be eligible if you then take absence due to this condition. 

Am I eligible for a group income protection policy?

If your employer has signed up to an income protection group policy, and a person suffers illness or injury that leaves them unable to return to work, long term, then you will be able to make a claim. 

The responsibility of doing so is in your hands. If there is a long deferral period, it might work in the best interests of you and your household to make the calls to your managers sooner rather than later. 

Should I consider salary sacrifice if my employer does not offer gip?

In some cases, a group policy might not be covered by the company. If you still wish to access this resource, you may be able to do so using salary sacrifice, although this will be set by your employer. 

In this case, you would be taking out a voluntary group income protection policy. You would be required to fund the protection using your own salary, rather than it being paid by your boss. The point of this is so that you will still be covered when your statutory sick pay ends. 

Who are the main Group Income Protection providers in the UK?

There are a number of different providers on the market. Some of the main insurers are AIG, Aviva, CanadaLife, Legal and General, and Unum. 

These are just a few of the main providers out there. With so many options employers should shop around to find the income protection plan that brings the best business benefits. 

As an employer, what should I consider when choosing an insurance policy?

The bottom line is that, with such a range of policies out there, you should seek professional advice. An expert can give guidance and answer your questions whilst considering the impact on your business. However, below we discuss some main details to look at.

One thing to consider is the percentage of their earnings you want to cover. Perhaps you would like to offer a better benefits package for employees that have been part of the workforce for longer. 

Another condition to  consider is the duration of benefit payments. Some businesses do not have a policy cease age. Instead they offer support services up until retirement/state pension age. However, premiums tend to increase as the length of time contributions are chosen to continue for increases.

One final thing to consider is the deferral period. This is how long employees must be absent from the workplace until the assistance programme kicks in. Normally, this will depend on the company sick pay policy. 

There are, of course, other conditions to consider. For example, you might want an early intervention strategy, too, such as an employee assistance programme.Get in touch with professional advisors to learn more about this.

Ultimately, your choice depends on your budget and the business expense. That is why we recommend having consultations with advisers before agreeing to a provider. 

"Income protection is a device used to financially support employees who are unable to work long term. Ideally, the employee will eventually return to work."

What is the difference between income protection and employee assistance programmes?

An employee assistance programme (eap) are designed to promote the wellbeing of employees, to help with risk and absence management. Essentially, they are preventative tools used to tackle potential future problems by early intervention

Income protection, on the other hand, is a device used to financially support employees who are unable to work long term. Ideally, the employee will eventually return to work. 

As an employer, you might want to consider putting a scheme in place, as well as giving employees access to income protection. This will offer liability protection on many levels.Some companies, such as Aviva, might offer a bundle package of the two. 

By giving employees access to an assistance programme, they will be able to access wellbeing services and treatments. Personal and work related problems can have a detrimental effect on both productivity , so it is important to intervene at the earliest stage.

The services can help employees cope with the pressure of balancing work relationships, a family, bereavement, and other factors of their lives that might result in them needing long term leave. Some companies provide a 24/7 helpline as one of their solutions. 

What is the cost of group income protection? 

The cost clients experience will be calculated as a percentage of the gross payroll. Temporary plans start from as little as 0.25%, but long term plans are generally charged at 1% to 2%. 

The exact cost of your plan will depend on the level of assistance you want to provide, and the policy terms you choose. 

As a rough guide, the quote you get will depend on the deferral period, the length of time the payout will last, whether you consent to providing pension contributions. Also, some specialists will give you the opportunity to reduce your fees if you pay annually, rather than monthly. 

How are group income protection payouts priced and calculated?

The exact finances provided depend on the conditions of the group income protection provider chosen by the head of the company. This is because the insurer will pay a percentage of the employee’s salary, rather than giving them a fixed amount of financial support. 

The percentage employees receive whilst on sickness absence is decided by the owner of the company when choosing what type of arrangement, and often premium, they want. Depending on circumstances, individuals can get up to 80% of their total salary. 

There is no option to cover a higher percentage, and for good reason. By not covering the full rate of pay, companies can encourage employee return. Therefore, whilst group income protection is a helpful service, it also provides an incentive for people to focus on rehabilitation and recovery.  

How is it paid?

After undergoing the claims process, the claims team of your provider will pay the income protection to the employer. Then, the company’s accounts team can pay the group income to their employees. Typically, this will be done using the PAYE system. 

_income protection insurance

Does it pay lump sum settlements?

Generally, an organisation will pay gip to their team on a monthly basis using the PAYE system. However, in some situations access to a lump sum payment might be a more logical form of financial support. 

Generally, lump sum payments of group income will be considered on an individual basis. The underwriting of lump sum payments depends on the provider, too. For example, Aviva cap the amount at nine times the annual income benefit. 

In the situation that you make a claim, do not expect to get access to a lump sum. Monthly payments are the typical approach taken when claims are successful. 

Will my employee also have access to rehabilitation services? 

Rehabilitation services can help get your staff back to work as quickly as possible. This is why many providers include rehabilitation support and/or a treatment plan for an absent employee in the terms of the insurance documents. 

Rehabilitation services can range from counselling, to physiotherapy, based on the experts opinion and nature of the problem. If you are an employee, wanting to get back to work as quickly as possible, first contact your case manager. 

Then, you will likely need to arrange meetings, such as an assessment and/or a rehabilitation appointment, so that you can access the materials and expertise you need. 

Is group income protection subject to tax deductions?

Unfortunately, there is no corporation tax relief. National insurance contributions and income tax must be paid, and there are no discounts. This is because the group income protection is in place of your salary. 

However, one of the perks is that group income protection is not considered to be a P11/ benefits in kind. This might help calm your money worries, since there is no additional tax charge 

How is it taxed?

Group income protection tax is deducted from your employee assistance funds automatically. This is because most employers already use the PAYE system to pay their employees. The PAYE system costs and deducts the debt before your entitlement is paid to you. 

what is group income protection insurance

Will group income protection affect my pension?

As an employee, you might have a pension plan and make pension contributions via your job. Unfortunately, not all types of plans will have requirements to continue paying this. 

Some employers might choose to help employees by paying an additional cost that puts features like pension contributions into their policy. 

If you are an employer, and unsure whether you should cover pension contributions, arrange to have a chat with an adviser . The professionals can give you tips and explain the risk, based on their understanding of your organisations aims and resources.   

How will a policy affect holiday pay? 

The case of holiday pay will be handled differently by employers. The best thing for employees to do is to speak to their manager. Your management should be able to report what happens in terms of holiday pay, based on their protection knowledge. 

Can I claim ESA If I have income protection insurance?

ESA stands for employment support allowance. Employees that claim on their income protection gip can still claim these state benefits. 

The reason for this is that the two payments are funded in different ways. A  GIP is paid for by your employer, as one of their employment costs (should they choose to take out a policy). Your employment support allowance, however, is funded by your national insurance contributions. 

Do these policies fall under TUPE rules?

The short story is yes, these policies have duties under the TUPE rules. Essentially, these rules ensure that if the administration of your company changes, your rights are protected. 

This means that, like pension plans, should you be transferred to another employer, payments will continue along the same lines as before. You should have a discussion with your new account manager, though, to see if this is likely to change in the future. 

Learn more about health insurance and related topics

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Permanent health insurance is one type of protection available for your wages. A PHI policy offers financial protection and peace of mind, in the event that you suffer an illness or disability that takes you out of work.

Whole Life Insurance

Whole life insurance is a type of life insurance policy that, unlike term life insurance, provides life insurance cover for the rest of your lifetime. Read more about them here.

Family Income Benefit

Family income benefit is one of the three main types of life insurance policy. It guarantees your loved ones a regular monthly income if you die during the term.  Read more about it here and see if it could help you.

Disability Insurance

Disability policies are a type of income protection insurance. If you are unable to work, your benefits package will pay a monthly benefit amount to replace your lost income.

Group Income protection

Group Income Protection (gip) gives employees that find themselves unable to work due to illness or injury a replacement income. It is salary protection insurance, taken out by companies as an employee benefit.

Endowment Policy

An endowment plan is a type of life insurance policy. As well as acting as a life insurance policy, it is also an investment fund. Read more about them here.

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