Group Income Protection

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Group income protection is designed to help you and your employees if they become ill and are unable to work

There are lots of technical parts of group income protection that can get a bit mindboggling. When a lot of people look at income protection they think about the benefit to the person that is ill, but they often forget about how much it can help the employer too.

Our advisers are here to arrange this insurance for you and explain it in a way that makes sense. 

What is Group Income Protection Insurance?

Group Income Protection InsuranceVery long story short, group income protection insures some or all of the employees of an organisation, to pay some of their income to them if they are ill and cannot work.

Now the first thing is that this going to help your employee a lot. They can take time to recover, not have to worry about their finances and come back to work when they are ready. This type if insurance often comes with a lot of rehabilitation support built in, so you can often find that people are back to work much quicker than they would be without the benefits that group income protection offers.

But there’s also a benefit to the employer too. If your employee is off work you will either need to pay them statutory sick pay, or potentially their income for a set period of time based upon their contract e.g. 6 months full pay, 3 months half pay etc.

By having an income protection policy in place if there is a successful claim the insurer will pay give you the money to cover part of the employee’s income, that you will them pay to them through the usual payroll. This means that the money you would usually pay them each month is still sat in the company. You can then use this to recruit someone temporarily, pay another member of staff overtime to cover their work, or whatever you want really.

Here are some key things to know:

  • From 2 people – Group income protection insurance can be arranged from as little as two people. When it’s just 2 people you generally can’t insure dividend income, but once you have 3 or more people you often can.
  • Levels of cover – You might choose to insure everyone for the same amount, or do different amounts. You could have everyone insured for 60% of their gross income. Or you might decide to have Directors insured for 75%, managers for 60% and all other staff 50%. You pick and choose what is right for you.
  • PAYE employees – With group income protection insurance you usually have to be in receipt of PAYE earnings to be eligible for the cover. There can be sometimes be options for people in a partnerships, sole traders or other organisations.
  • Premiums are paid for by the company – This policy is usually paid for by the company for it’s employees, and the premiums can then usually be offset against corporation tax.
  • Anti-selection – Group insurance has a specific rule about insuring everyone of an identifiable group within the organisation. You can’t suddenly not insurer Manager B because they are not pulling their weight. As an example you could choose to just insure the Directors, this is fine as long as all Directors are covered. You could insurer Directors and Managers only, again this fine as long as everyone that sits in these roles is insured. You could also choose to insure everyone.
  • Cost – Group income protection is priced differently to personal insurance policies. Group cover is based upon what is known as ‘pooled’ risk. Without going into the jargon of this, this simply means that it can work out cheaper per person to have group income protection, rather than each person having their own individual policy. Most employers believe that this is going to be far more expensive that it is.
  • After a Claim – The policy will continue to insure everyone else, just like it had done before the claim. During a claim for income protection the insurer will work with the employee to try and support them to return to work when and if they can. This can include things like phased return to work, where the person comes back at reduced hours, to see if it’s the right time to do so. The person may then increase their hours, keep the same or reduce their hours again, and the insurer will continue to offer support.

There are a lot of things to go through in terms of how these policies can be arranged. Things like the amount of cover needed, if national insurance and pension contributions will be insurer, if a successful claim can potentially last a a maximum of 2 years or all the way to retirement age.

Our advisers are trained to listen to what you want and need and build these policies to match you and your company.

The Essentials

Insurance is full of jargon, we do try to avoid it, but there are times that it creeps in. Here are some of the terms that you might here when looking at group income protection cover.

  • Age cover ceases – This is how long employees are insured for. You might have everyone insurer to statutory pension age, or you might choose different lengths of time for different categories.
  • Categories – A category tells the insurer what a set group of people in your company are entitled to. You might have one category that simply says All Employees. Or you might choose to mix it up a bit to give different benefit amounts to different people. This can look like Category 1 are the Directors, Category 2 and the Managers, Category 3 are all other staff.
  • Deferred period – This is the amount of time that someone needs to be off work sick, before the financial support will kick in from the insurer. For group income protection this typically starts from 8 to 13 weeks.
  • Monthly benefit – This how much income people are insured for. You might choose for everyone to insured for 65% as an example. Or you might choose one category to have 75%, another 65% and another 50%.
  • Claim period – This is how long a successful claim will payout for. It can last all the way to retirement age so if your employee can never work again, they will receive their income from the insurer every month up to the retirement age chosen for the policy.

Each of these areas will determine how much the policy will cost. This means that if you look at a group income protection policy and be unsure of the cost, there are many ways to tweak it to find an option that feels worthwhile to you.

What if I have a Health Condition?

There are many people that apply for personal income protection that then find that that the policy has exclusions. It is quite common to see mental health and back exclusions on personal income protection policies as these are the two biggest claim areas for this type of policy. There are also many health conditions that will unfortunately lead to a personal income protection application being declined.

But group income protection is different. Group protection policies are based upon the pooled risk that we mentioned earlier. This means that the insurers give a certain amount of free medical underwriting limits for group income protection.

For many people this means that their pre-existing conditions, their travel, their hobbies, are not considered during the application process. There are no exclusions or increased premiums for the insurance within the free medical underwriting limit.

This limit tends to start at £65,000 per year with group income protection. Now that doesn’t mean you will definitely have access to that. If your annual salary is £50,000 a year and the policy is set up at 65% cover, then you will be insured for £32,500 annually. This sits within the free medical underwriting limit so your health and other factors should not be excluded from the claims set.

This would mean that if you already have a mental health condition, under a group income protection policy, you should be able to make a claim if you are ill and unable to work due to your mental health. 

There are always some exceptions to the rules. Some insurers will ask you if you have been diagnosed with certain conditions in the last 12 months. This is usually cancer, heart attack or stroke. Some will ask about specific locations that you might travel to for your work. So you might find that with some insurers you need to answer yes to these questions and you cannot arrange the income protection with them, but that doesn’t mean all insurers will be the same.

Our advisers are here to help you get the right insurance policy for you and your business. A group income protection policy can be a great employee retention tool and it’s worth having a chat about what it can mean for you.

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