Group Income Protection
Group Income Protection
A group income protection policy pays a proportion of the employee’s salary if they are unable to work because of long-term illness or injury. The benefit is paid to the employer, who then passes it on to the employee through payroll. Financial support kicks in after a waiting period, known as the deferred period. This is set by the employer and could be in line with sick pay arrangements or a period such as 13, 26 or 52 weeks. Group income protection covers any condition or injury that prevents an employee working long-term, whether that’s a physical condition such as a bad back or cancer or a mental health issue such as stress or depression.
Flexible cover
Group income protection is flexible, allowing it to be tailored to an employer’s needs. This could ensure it meets any promises set out in the employment contract or is matched to the organisation’s objectives and budget.
Flexible payments
Employers can flex the level of benefit they offer employees, with insurers typically covering up to 75% of gross salary. It’s also possible to include employer social insurance contributions and employer and employee pension contributions. Indexation can be added to help payments keep pace with inflation. This could be a set percentage or RPI, where the escalation may be capped at, for example. 2.5% or 5%.
Flexible waiting times
The waiting time – or deferred period – before benefits become payable is also flexible, with insurers offering a range of options from 13 weeks to 104 weeks. The longer the deferred period, the cheaper the premium but it’s important to consider the broader financial implications when selecting. If an employment contract promises sick pay during the deferred period, the employer will need to fund this.
Flexible termination ages
Group income protection benefits are traditionally paid until the earlier of the employee returning to work or a specific age, generally between 65 and 70.
Modern payment terms
Shorter payment terms are also available. Paying an income until retirement is generous but, for a growing number of employers, it’s not in keeping with modern working practices, where the concept of a job for life feels very old fashioned. A limited term policy pays benefits for a maximum payment term, from one to five years. Capping the length of time benefit is paid reduces the cost of cover.
Where an employee is unable to return to work within the payment term, the employer can add a final lump sum. This could be used to help them retrain or to provide additional support with their illness or injury
Incapacity definition
Another product feature that can be adjusted is the definition of incapacity. This determines whether a claim is eligible, and insurers offer a range of different options. The most generous definition is own occupation, which means that if the employee is unable to perform their normal occupation because of their illness or injury, they will be able to claim.
Suited occupation means they can claim providing they can’t do their own occupation or another role that’s of a similar level, salary, and skill set. For instance, a business development manager might not be able to drive to visit clients, but they might be able to take up a role in the office training other employees. It’s also possible to offer own occupation switching to suited occupation, where the more generous definition is in place for the first two years before broadening out to suited occupation.
Contact Abacus Wealth Management today if you think your business could benefit from a Group Income Protection policy.