What Is Group Income Protection Insurance and How Does It Work

Group income protection insurance is a type of insurance that helps protect your income if you're unable to work due to illness or injury.

It's usually offered by your employer as a benefit to their employees. This way, you can earn a portion of your salary even if you're unable to work.

The insurance typically covers a percentage of your gross income, which is usually between 50% and 100%. This means if you're earning £50,000 per year, you might receive £25,000 to £50,000 per year while you're unable to work.

The amount you receive will depend on the policy terms and conditions set by your employer.

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Group income protection insurance is typically set up and owned by an employer. It's a short-term measure designed to help employees get by until they're fit to go back to work.

Payments from a group income protection scheme are lower than an employee's salary, usually a maximum of 70%. This means employees will still have some income coming in, but it's not a replacement for their full salary.

The policy is owned by the employer, which means employees can't make their own claims. The employer receives the money from the insurer and then pays the employee.

This payment is treated in the same way as taxable earnings, so employees will pay income tax on it.

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Group income protection insurance is designed to replace a portion of your income if you're unable to work due to illness or injury. This means that you'll receive a regular payment to help you cover essential expenses.

Your employer typically pays a premium for this type of insurance, which is usually a percentage of your salary. For example, if your employer pays 50% of your premium, you might pay the remaining 50%.

The insurance will usually pay out if you're unable to work due to an illness or injury that lasts for a certain period, typically 26 weeks.

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A GIP is funded entirely by the employer, who pays the premiums. This is a key difference from pension schemes, where both employer and employee contribute.

Employers may calculate an employee's salary to account for the income protection, making it seem like the employee is contributing without knowing.

In most cases, the income protection is simply part of the salary and benefits package.

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Group income protection insurance provides numerous benefits and advantages for both employees and employers. By offering this type of insurance, employers can show their employees that they value and care about their wellbeing, which can lead to improved morale and productivity in the workplace.

Employers can also reduce stress-related illness and absenteeism by providing access to wellbeing services and early intervention programs. This can be achieved by including services such as telephone or face-to-face counselling sessions, physiotherapy sessions, and employee assistance programs in the policy.

Some employers may also offer additional benefits, such as a 24/7 digital GP service, nutrition and fitness programs, and return to work services. These services can help employees get back on their feet and return to work at a quicker pace, which can benefit both the employee and the employer.

Here are some benefits of group income protection insurance:

By offering group income protection insurance, employers can improve their employer brand, attract top talent, and retain existing staff. This can lead to increased brand recognition, improved customer loyalty, and a more positive public image.

Offering Group Income Protection to your employees shows you value them and are there to provide support at times they may need it. This can help improve employee retention and engagement, as well as boost morale and productivity in the workplace.

Reducing stress-related illness is also a significant benefit, as it can lead to a healthier and more productive workforce. By offering Group Income Protection, you can manage sickness absences and reduce the financial burden on your business.

Group Income Protection can also help attract top talent and retain your existing staff, as employees value benefits that provide financial security and make a difference to their life outside of the office. This can give your business a competitive edge in the job market.

In addition, the premiums you pay on behalf of your employees for Group IP are an allowable business expense in the eyes of HMRC. This can help reduce your business expenses and improve your bottom line.

Here are some specific benefits of Group Income Protection for employers:

Group income protection plans have some significant drawbacks to consider. GIPs are often a one-size-fits-all mechanism, which means little to no opportunity to customize cover for individual needs and circumstances.

Policy terms are usually set for the whole group, leaving you with limited flexibility. This can be frustrating if you have specific requirements that aren't met by the standard policy.

Employment-related, group schemes are usually tied to your employment, so once you leave the company, you'll no longer be covered. This can be a major concern if you're planning to change jobs or start your own business.

There may be restrictions on the illnesses or injuries covered by a GIP plan, mostly to accommodate the potentially large number of people who are members. This can leave you with limited protection in case of an unexpected illness or injury.

Exclusions for pre-existing conditions or high-risk activities are common, which means you'll still be covered, but not for illnesses or injuries connected to anything that's excluded.

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To get started with group income protection insurance, you'll need to establish some eligibility requirements. This typically involves agreeing with the insurer on factors such as minimum and maximum entry ages.

Factors such as categories of members to be covered, required qualifications, and when new employees can join the scheme (e.g. after their probationary period) will also need to be considered.

When existing members can increase their benefit is another important consideration.

The good news is that you can tailor these requirements to suit your business's specific needs, ensuring that your group income protection insurance policy is effective and beneficial for all involved.

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Eligibility Requirements are a crucial aspect of any employee benefits scheme.

You'll need to agree on the eligibility conditions with the insurer, which will typically include factors such as minimum and maximum entry ages.

These conditions will determine who is eligible to join the scheme, and when.

For example, you might decide that new employees can join the scheme after completing their probationary period.

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You'll also need to decide on categories of members to be covered, such as all employees or only certain groups.

Any level of qualifications you think should apply will also be a factor in determining eligibility.

Existing members may be able to increase their benefit at certain times, but this will depend on the conditions you agree with the insurer.

Here are some common eligibility requirements to consider:

Occupation Cover is a crucial aspect of Group Income Protection, and it's essential to understand the different definitions of incapacity to ensure you're getting the right coverage for your employees.

There are three options to choose from: Own Occupation, Suited, and Any. We recommend clients get Own Occupation cover, as it's the most comprehensive.

To claim under Own Occupation, an employee only needs to be incapable of doing their own job role, making it the easiest definition to claim on.

The other definitions are more restrictive, making it harder to claim successfully.

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Here's a quick breakdown of the other two definitions: