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Group Income Protection Explained
Over the past 12 months we have spoken with many clients who are either enquiring about group income protection or have a scheme and questioning if its fit for purpose.
Group Income Protection allows employers to claim a percentage of an employees pay back via an insurance policy, to continue to pay an employee after they have been absent for a period of time. These monthly payments can be for a short 2/3 or 5 year period or even to retirement age – should the employee be unable to work at all. Along with this insurance benefit, employees also have access to early intervention services to get them back on their feet as quick as possible and back into work in some capacity, whilst working with the employer to provide a suitable work environment for the employee until they are back to full health.
Each insurance company that operates with these benefits provide additional services from early intervention rehabilitation to businesses services that help the employer with day to day management of absence. A truly comprehensive service all built in with the insurance premiums they pay.
We are talking to more and more companies that want to offer these benefits to their employees that have previously had a low level of absence. They are mindful of the challenges that employees could have in the future and also the financial impact it could have on the company if an employee was to be absent from work for a long length of time. A cost that you truly cannot foresee.
As an example –
Employer A has no income protection scheme. They have 25 employees currently and generally have a really low absence level – we would expect based on this headcount that the average number of absence days per employee would potentially be 5.9 days lost per annum. A total to the company of £12,550 (Averaged at £502.00 per employee) *These figures are via AVIVA absence calculator.
But what would happen if these were more longer term cases? What are the financial impacts to the organisation? The absence could spiral in terms of costs.
From an employee perspective – they are already stressed with being absent from work due to illness/injury, add in the financial concerns of not having a guaranteed income.
Advice from us – lets discuss what your current sick pay policy is and see how much the cost of a group income protection scheme would be. This would be a cost that you could control each year unlike the unknown absence costs that could vary year on year.
On the other side of the coin we have also been talking to lots of companies who provide income protection to their employees and want to make sure the benefits and payment periods are fit for purpose. Some that fit around their current sick pay structures and some who are considering ultimately if a payment to retirement age is what they would really like.
As an example –
Employer B has a scheme that begins after 26 weeks absence, pays 50% of salary to retirement age. Their current sick pay policy allows an employee to be paid full pay for the first 3 months and then 50% for 3 months after. If a claim is accepted the insurer will pick up the claim at 26 weeks and pay 50% to retirement age.
Advice from us – they could consider lowering the deferred period to 13 weeks and capping the payment period to 5 years.
Now we know the market average for a claim to be paid is currently 4.1 years until the employee either returns to work in full or leaves the company.
With this client in mind it would be beneficial for them to consider amending the underlying benefit of their current scheme. Not only will these changes make them a saving in terms of their current sick pay benefits but also will make them a saving on the premium to provide income protection for their employees.
If you are interesting in hearing more about how income protection could help your organisation or how we can help you with your current benefits structure please get in contact.
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