Updated: April 20, 2024
A Complete Guide to Group Income Protection Insurance
How do you set up a group income protection scheme and what are the benefits of belonging to one? All the answers are here
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Group income protection (GIP) is a popular benefit for large organisations to offer to their employees as part of their benefits package.
But how does group income protection work for an employer? How do benefits get paid if you make a claim? and how does being a member of such a scheme benefit employees?
You can find the answers to all these questions and a whole lot more besides in this very complete guide to group income protection.
You can read from top to bottom or click a link to jump directly to the answer you’ve been looking for:
What is group income protection?
A group income protection scheme is set up by employers to provide an income to employees in the event that an employee is unable to work due to ill-health or serious injury. Group income protection will give the employee an income to make up lost earnings during the time they are recovering.
Should a group income protection plan pay out to an employee, payment would usually start following a deferment period, which is often set at around six months. Payment would then continue up until the time the employee is able to return to work or, depending on the policy terms, when they reach state pension age.
How does it work?
The group income protection policy is owned and paid for by an employer. Benefits paid out from a scheme will be paid to the employer or company, not the employee who is sick or injured.
The payment will go through PAYE as though it’s part of the employee’s salary, it is then up to the employer to pass the benefit on to the employee, as net pay.
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Do group income protection plans pay out lump sum settlements?
In some circumstances a lump sum settlement can be a more appropriate way to pay the benefit. While most group income protection policies are designed to pay out a monthly benefit for the duration that an employee is unable to work, many group income protection policies allow for lump sum settlements to be paid where it makes sense.
If the income protection policy has an option to pay a settlement as a lump sum, and it’s appropriate to do so, it’s likely to fall outside the terms of a standard policy and will need additional discussion and negotiation to execute.
Lump sum settlements will generally be considered and negotiated on a case by case basis, so it’s not something you should automatically expect as an option if you’re making a claim.
Are there eligibility rules?
Eligibility conditions have to be agreed with the insurance provider, these could include things like:
- Minimum / maximum entry ages
- Any level of qualifications which should apply
- Categories of members to be covered under the policy
- When new entrants can join the policy
- Details of when existing members can increase benefits
Sometimes membership can be reliant on being a member of the employer pension scheme.
Should you have defined a category, or categories, of employees who are covered, it can sometimes be necessary to make it compulsory that all qualifying employees be members of the group income protection plan.
Eligibility conditions covering age, entry dates and deferred periods must be the same for all members within a specific insured category.
Are there any cover limits?
Most group income protection plans are offered with optional choices, enabling employers to pick and pay for the level of cover they wish to provide to employees.
This means that all policies will come with specific cover limits, determined by the choices selected when the insurance policy was taken out.
What does group income protection cover?
Most basic level policies are likely to offer the following level of cover:
- Benefit paid until a specific age, or limited to between two and five years
- The employer’s liability for National Insurance Contributions
- Long-term additional benefits to cover employment costs, e.g. pension contributions
- Short-term additional costs paid for between six months and a year to cover payments to get temporary or replacement staff
- Final lump sum payment at the end of a payment period, to fund early retirement, for example
- Upfront lump sum payment of £10,000 if an employee is unable to work for 14 days or more due to heart attack, cancer or stroke
- Choice of when payments should start and whether benefits continue to be paid at the same level or increase over time
- Option to select pay direct terms enabling basic benefit to continue to be paid directly to an employee after they have left the company
Cover limits can vary dramatically between both provider and level of cover selected. For example, cover could start at a very basic level but you can get executive level cover which will extend to covering things such as:
- Cover for up to 80% of an employee’s gross earnings
- Additional disability cover, which will provide an increased level of cover if benefit is paid beyond two years
Is there a maximum benefit level?
Yes, all group income protection insurance policies will stipulate a specific maximum benefit level in their terms and conditions, to protect their risk.
The maximum benefit levels will vary between insurance providers and specific policies chosen.
Group income protection will apply maximum benefit levels to:
- The percentage amount of employee income covered
- Pension contributions covered
- Any lump sum payments will have a cap
- The length of time benefit will continue to be paid – often dictated by employee age or selected in terms of number of years by the employer when the policy is set up
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Can it be included as a flexible benefit?
Group income protection is a popular benefit to include within a flexible benefit package to company employees. Flexible benefits is the name given to the way a company might offer additional benefits to staff.
Such schemes can be a convenient way to allow employees to alter their pay and/or additional benefits in line with their own personal preference and requirements.
Group income protection is just one of the options employers like to offer within these formalised schemes.
Other benefits might include:
- Private medical insurance
- Critical illness cover
- Group pension
- Life assurance
- Season ticket loans
- Cycle to work schemes
If you want to formalise the benefits package you’re offering to your employees, get in touch and talk to one of the experts we work with.
Our advisers are regulated by The Financial Conduct Authority and so you will be dealing with a highly trained person that adheres to strict rules of conduct.
As whole-of-market insurance brokers, they will be able to find you a benefits package to suit your budget, please your employees and help attract new talent to your firm.
Who are the main providers in the UK?
Many insurance companies will cater to employers seeking group income protection but, on a casual search of the market, the main ones you might come across include Unum, Legal & General, Canada Life and Aviva.
How easy is it to make comparisons between them?
It isn’t! The complexities involved in the range of benefits you can select and the level of cover for each area you want to adopt means there’s nothing straightforward about choosing the best policy. When it comes to comparing the price for your chosen level cover, most of us will be ready to give in without having made a single decision!
If you want to compare group income protection from a handful of different insurance providers it’s going to take you some time to reach a useful conclusion, especially if you don’t know very much about the product to start with.
When it comes to comparing insurance as complex as group income protection, your absolute best bet is to use an experienced insurance broker, like those we work with. Get in touch and we’ll put you in touch with one of the experts we work with.
All the experts we work with are independent financial advisors with access to every insurance provider in the UK.
They will use their knowledge, experience and resources to take the load of your shoulders, ensuring you get the level of cover you want at the most competitive price available and explain exactly what you’re paying for in the process. Resulting in far fewer headaches and a heap less hassle, not to mention the money you could potentially save in both time and premiums.
How is group income protection calculated?
While the specific calculation will primarily depend on the insurance provider, most providers will detail the way they calculate the cost of premiums in their product information and terms and conditions.
To begin with, the way premiums are calculated will be determined by how many people the policy will cover. If, for example, you are buying cover for over 20 members, some insurers will calculate a unit rate by multiplying the salary roll by a rate.
Whether you’re insuring 10 people or 50, the following factors will be taken into consideration for each individual:
- Age
- Gender
- Occupation
- Location of normal place of work
- Age cover is to cease
- Deferred period
- Annual rate of increase of a claim payment, where applicable
- Premium payment frequency – can be paid monthly or annually
- Definition of incapacity applied
If you would like to find out how much it might cost you to provide a group income protection scheme to all or some of your employees, get in touch for a free, no-obligation chat and we’ll connect you with one of the independent insurance brokers we work with.
Speak to an expert
If you’d like to find out more about setting up a group income protection scheme for your employees or are considering joining a scheme on offer to you through your company, call 0808 189 0463 or make an enquiry for a free, no-obligation chat.
We’ll connect you with one of the independent financial advisors we work with. They will be able to answer all your questions and help you figure out the ins and outs of how such an insurance product could benefit you or your staff members.
Remember all the advisors we work with are fully qualified to provide advice are authorised and regulated by the Financial Conduct Authority.
FAQs
SSP – Statutory Sick Pay – is paid by your employer for up to 28 weeks if you’re too ill to work. While you need to qualify for SSP, many benefit claims on group income protection schemes will kick in after a period of 26 weeks, so SSP is mostly unaffected by benefits you might get from a group insurance policy.
Yes, because ESA – Employment and Support Allowance – is a contribution based state benefit, paid for from your national insurance contributions. Therefore, claiming benefit under an income insurance policy will not affect ESA payments you may be eligible for.
State benefit rules can and do change, so if you have any questions about your state benefits in relation to payments you may receive from a group income protection scheme, Jobcentre Plus should be able to help reassure you.
Some group income policies provide cover for both employer and employee pension contributions in the event that a claim is made. Most providers will offer this as an option but you will need to check the terms of the group policy you’re insured under to determine what the rules are in your case.
Where pension contributions are covered under a group income protection plan, often this will be calculated as a percentage of the member’s salary and limited to a maximum total.
If you vary your pension contributions, you can’t expect benefit from an income protection scheme to mimic this, it’s simply not possible. So providers won’t offer this, most often pension contributions to the company pension scheme are what will be covered, rather than contributions to a personal pension you may have.
If you’re setting up a scheme for your company staff and want to understand the options you could choose, including cover for pension contributions, make an enquiry and we’ll connect you with one of the independent experts we work with.
It’s unlikely an employee will make a scheme of this type compulsory. It is usually offered as an opt in benefit provided to permanent staff members.
Sometimes it’s necessary to be a member of the company pension scheme to be able to qualify to join the group income protection plan.
How your holiday pay is affected if you are claiming benefits under a group income protection scheme will depend on your employer. Your best bet is to ask your line manager what the situation is.
Many group insurance policy providers will avoid getting involved at this level and statutory holiday entitlement is not their area, so, in the first instance it’s best to take your enquiry to your company.
The deferred period is specified when the insurance policy is set up by the employer. Although deferment periods can vary depending on provider and policy, typically, employers will choose 26 weeks to align with the period when Statutory Sick Pay ceases.
However, policies can be set up with deferred periods anywhere between 13 and 104 weeks. The longer the deferred period, the lower the cost of premiums.
Yes, as an employee getting benefit payments from a group income protection scheme, your payments will be net. This works by payouts being paid directly to the employer before being distributed to the employee via the PAYE system.
While it’s possible to buy short-term income protection as an individual, group income protection insurance policies are predominantly long-term policies.
Get in touch to find out what kind of group income protection policy might provide the benefit you want to make available to your staff.
Sometimes. If you want more than the basic level cover offered by an insurance provider, they may require members joining the policy to undergo a medical to protect their risk. Whether your group policy requires medical underwriting will depend on the level of cover, the number of people the group policy will cover, the provider and the type of policy you are buying.
Group income protection will not pay out if an employee is made redundant. This insurance is designed to pay out only if an employee is unable to work for an extended duration because of illness or injury (subject to exclusions).
However, there are a few policies which may offer an employer the opportunity to ensure their employee can continue to receive payments from an ongoing long-term claim, even in the event that the employer has to terminate the employment contract.
This is sometimes referred to as pay direct or similar and can be beneficial by letting both the employer and the employee move on.
Yes, group income protection schemes can be transferred under TUPE rules. These are rules affecting the rights of employees in the event of one company being taken over by another. Read our guide to TUPE regulations for more information about this.
Whether it is a good idea to sacrifice your salary to join your company group income protection scheme will depend on the benefits offered by the scheme and your individual circumstances.
Start by understanding the level of salary you may give up to benefit and get up-to-date details of the group income protection scheme provided.
For unbiased, independent advice about whether it’s a good idea to sacrifice part of your salary to join the scheme available, make an enquiry for a free, no-obligation chat.
In some circumstances, yes. While this kind of insurance is generally offered by large employers, group income protection can be a good way to attract and keep new talent. Because it offers long-term financial security employees value the benefit since equivalent individual insurance is usually quite expensive.
On top of this, once you’ve found the right policy, administering the insurance is simple and, once it’s set up, you’ll only need to provide membership information to the insurer a few times a year, and usually this can be done quickly and easily online.
If you’re a small business owner and are considering a group income protection policy, get in touch for a free, no-obligation chat with one of the independent experts we work with.
Group income protection is designed as a benefit for employees of a company, it’s therefore highly unlikely that you would qualify to join a group scheme if you work for a company on a self-employed basis.
If you want to arrange individual income protection get in touch and talk to one of the independent financial advisors we work with to find out how much cover might cost.
Fully integrated and partially integrated income benefits apply when ESA is not payable. These types of benefits are only available when the policy cease age doesn’t exceed the state pension age and, generally, policies will need to have a minimum of 30 members to qualify.
To find out if your group scheme qualifies, ask your provider or check the terms and conditions of the policy.
It is possible to get group cover for equity partners but the way benefits are calculated will be different to how normal employee benefits are calculated.
In this case, most insurers will use ‘drawings’ actually taken to calculate benefits. These will often be an average over a three-year period rather than fixed share ‘drawings’.
Equity partners will usually include full partners, fixed share partners and members of a Limited Liability Partnership.
Yes, it is unlikely that group income protection will differ if you are based in Ireland, and the rules we have discussed here will almost certainly apply.
Ask a quick question
We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in group income insurance. Ask us a question and we'll get the best expert to help.
Richard Angliss
Finance Expert
About the author
Richard Angliss has made a career in financial services which stretches over 40 years.
His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.
For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.
At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.
With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them. Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.
He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.
