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Group Income Protection

What is Group Income Protection?

Group Income Protection provides financial support should an employee be unable to work due to significant illness or injury. But it’s not just about finances… 

An Income Protection scheme will often include practical support to help employees return to good health and get back to work.

You might also hear the policy referred to as “business income protection”, “disability protection” or “employee sick pay”.

How does Group Income Protection work?

With these plans, the employer is actually the beneficiary, not the employee, even though it’s the employee that’s insured.

The employer typically selects a defined percentage of their employees’ salaries to insure if they become long-term absent due to illness or injury. For example, you may choose to insure your employees for 75% of their salary.  In this instance, if an employee becomes unable to work, the employer receives the 75% of salary from the insurer and is able to comfortably continue paying their staff member whilst they are unwell.

This means that the employer can afford a temporary replacement for their absent team member and commit to their recovery and eventual return to work.

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What are the benefits of Income Protection Insurance?

These are some of the reasons that businesses are selecting Group Income Protection:

  • Provides a monthly income for staff if they can’t work due to illness/injury
  • Reduces the strain on the employer to keep paying an unwell employee
  • Assists with moral and financial obligation employer feels for staff
  • Insurer helps facilitate a quick return to work for the employee
  • Makes available a broad range of rehabilitation tools and services

There are a range of support services which Group Income Protection providers offer to assist employees whilst absent. These can include:

  • Virtual GP’s
  • Mental health support
  • Physiotherapy
  • Second opinion service
  • Employee Assistance Programme (EAP)
  • Rehabilitation

For example, Canada Life offers an extensive range of virtual services which includes 24/7 access to GP consultation, an early intervention service which starts on day one of an absence, access to second medical opinions from expert consultants, and offers a range of additional perks such as cinema tickets.

However, every insurer offers some level of support service. The idea behind the support is simple: it is designed to help your employees make a speedy recovery from whatever injury or illness they are suffering from.

Vitality paid out 96.8% of Income Protection claims in 2020.

How much does Group Income Protection cost?

There are various factors which influence the cost of sick pay insurance. Costs are usually calculated as a percentage of gross payroll. The following factors will affect the premium:

Coverage period

A temporary (or short-term) plan is a policy which typically provides coverage for a 1, 2 or 5 year period (plans can start from as little as 0.25% of gross payroll). A long term plan will cover employees up to retirement should they not be able to work.

Unsurprisingly, a long-term plan will attract a higher premium (usually around 1% and 2% of gross payroll).

Medical history

The previous medical history of your team will also influence the premium. This tells insurers how likely it is that a claim will be made. The higher the likelihood, the higher the premium.

Age & occupation

The age of the workforce and the type of work performed can both be factors which influence the cost.

Percentage of income covered

Many businesses opt for a minimum of 50%, but most select between 60-75%. The higher the percentage, the higher the premium will be.

The range of injuries and illnesses covered

The lower the range of ailments provided for, the lower the cost and vice versa.

Deferral period

Every plan has a “deferred period”.  This is the period of time which an employee must be absent from work before a claim can begin.  Most businesses opt for 13 or 26 weeks to align with their internal sickness absence policies, but it’s possible to have up to 1 year.  The shorter the deferral period, the higher the premium is likely to be.

Important! Employers shouldn’t wait until the deferred period has expired before reaching out to their insurer or employee benefit consultancy. The earlier you can register an absent member of staff, the more chance there is of providing support services and returning them to work.

Standard or guaranteed premium

A standard premium can be increased by the insurer over time, while a guaranteed premium freezes the premium (meaning it won’t go up).

Monthly or annual pay

Some insurers will provide a financial incentive to pay annually as opposed to monthly.

Note: Group Income Protection policies paid out more than £550m in 2020 according to industry data from GRiD.  

“Engage didn’t sell us a policy but they stopped us making a big mistake. Well done!”

How do businesses find the best deal?

There are two main options for finding the best deal on Business Protection Insurance:

  1. Research the market and negotiate directly with insurance companies yourself
  2. Employ an expert business health insurance broker to do the work for you

In the first case, a business owner or HR manager must independently research all the different Income Protection policies on the market. While this, in theory, reduces costs associated with employing a broker, it requires a major investment in time.

One of the key problems is that you will be negotiating directly with sales advisors. While they will have some knowledge of the industry, their main area of expertise is in persuading you about the benefits of the product they are offering. The sales spiel can be very persuasive, yet the end result not necessarily what you needed.

Alternatively, if you employ an independent health insurance broker like Engage, you will be getting expert guidance from people who truly understand the policies being offered across the whole marketplace. Ask a good broker any question and you can get an honest answer – and one backed up by genuine expertise.

Another benefit of employing a broker, is that they can source better deals than are publicly available. This is because insurance companies are fighting for business – we work with multiple businesses and therefore can bring more custom their way. It’s in their interests to give us a better deal than they would offer a standalone business.

Who are the main Income Protection insurance providers?

All the main insurance providers offer Group Income Protection and they also include some form of employee support service designed to help workers get better and back to work as quickly as possible.

The main insurance providers offering Group Income Protection Insurance include:

  • Metlife – “Tailored return to work support can help minimise absence duration and even prevent an absence becoming long term in the first place.”
  • Canada Life – “Our insurance provides a replacement income if your employee is unable to work because of an illness or injury. Plus, we’ll help your employees return to work with our rehabilitation support.”
  • Aviva – “Proactive rehabilitation services and a simple claims process help your employees focus on their health, recovery and return to work.”
  • AIG – “Our Group Income Protection solution provides the tips and tools needed to help employees with their physical, mental and financial wellbeing, as well as paying up to 80% of an employee’s salary, if they are unable work.”
  • Zurich – “Our in-house team of rehabilitation specialists are on hand to offer practical support and expertise from the employee’s initial absence through to recovery.”
  • Legal & General – “As well as the financial support, we aim to help you manage long-term sickness absence. Policies include rehabilitation where appropriate, to help support employees back into the workplace.”

Frequently Asked Questions

Is Group Income Protection insurance a taxable benefit?

No, Group Income Protection is not normally considered a taxable benefit in kind for the employee. Furthermore, it’s usually an allowable business expense for the employer too.


That means neither employer nor employees usually have to pay additional tax on premiums. However, if a claim is made then HMRC will tax the benefit via the PAYE system as they would with a normal wage.

How is Income Protection paid?

Once a successful claim has been made, the insurance company will pay the employer who, in turn, will pay the employee via payroll. An amount is usually paid out monthly, though a lump sum payment option is possible.

Do I need both Income Protection and Critical Illness Cover?

Potentially, as they cater for different scenarios. While Income Protection provides for a wider scope of injuries and illnesses, Critical Illness Cover pays out a single lump sum if an employee is diagnosed with, or has surgery for, a specified, potentially life-threatening illness.

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