What is group income protection and is it worth it?

6 min Read Published: 01 Aug 2023

What is group income protection and is it worth it?Group income protection schemes give employers a way to offer their employees extended sick pay without having to use revenue and profits from the business. Beyond the security of an income, group income protection schemes provide a variety of support services that can prevent and reduce the impacts of health conditions while enhancing the well-being of employees.

In this article, we explain group income protection, how it works, the benefits to employers and employees as well as how to source the best group income protection scheme for your business.

What is group income protection?

Group income protection is a business insurance that provides members of the insurance scheme with cover against sickness or injury that makes them unable to work. The business pays for the insurance and it acts as an extended sick pay benefit that could aid recovery and return to work.

The main purpose of group income protection is to protect the business and support employees if they become unable to work due to incapacity. The scheme pays up to 80% of the employee's gross income to the business so that it can provide an absent employee with financial security while reducing the financial burden on the business to carry on paying an absent employee whose functions may need to be filled with a temporary replacement.

Group income protection schemes also provide an array of extra services for employees, many of which they can access even if they are not absent from work. These include mental health therapies, counselling, virtual GP access and rehabilitation services. The extra services can prevent health conditions from deteriorating to the point where they cause an incapacity to work and can also reduce the duration of incapacity by providing early intervention.

How does group income protection insurance work?

A group income protection scheme is paid for and owned by the business and the business can choose which members of staff are to be included within this insurance scheme. The insurance usually forms part of the benefits package that is offered to all or some employees which can include other benefits such as death-in-service benefits and health insurance.

Most employment contracts offer a limited number of paid sick leave and the group income protection benefits complement the sick pay. This means that the employer can use the insurance payout to continue paid sick leave for employees. The insurance scheme can be arranged so that the benefits are paid for a limited period such as 1 or 2 years or they can be paid indefinitely until the employee reaches state pension age or a retirement age that is selected. The group income protection insurance will usually pay out after an initial deferred period known as the waiting period between the first day of absence to when the benefits are paid. The deferred period is selected when the group income protection insurance scheme is set up - the longer the deferred period, the cheaper the insurance.

If an employee becomes incapacitated to work, the business will make a claim and the insurer will start paying the business the benefit amount that is insured so that it can be processed through payroll to the employee as sick pay. As a business, you can decide which of your employees you wish to add to the scheme and the point at which they become eligible to join it.

Employee benefits can include an array of financial provisions including:

  • Death in service 
  • Critical illness cover
  • Income protection
  • Pension contributions
  • Private medical insurance

Group income protection key features

Plan feature Details
Cover amount the monthly benefit that is paid in the event of a claim is a proportion of the employee's income and you can choose up to 80%
Deferred period the time between the first day of absence due to incapacity and when the scheme starts paying the income - choose between 8, 13, 26, 28, 41 and 52 weeks
Expiry age the employee's age when the cover will stop - usually in line with the employee's retirement age
Payment period the maximum length of time that each claim can continue to be paid. This can be limited to between one and five years but is usually paid until the employee returns to work or reaches an agreed retirement age

Group income protection optional benefits

Options Details
Pension contributions covers employer/employee pension contributions during claims
National insurance payments covers national insurance payments during claims
Serious illness payment pays a lump sum of money to the employee if they are diagnosed with a listed illness
Replacement costs pays money to support the business with the cost of covering the absent employee's functions during claims

Is group income protection taxable?

The benefit from a group income protection scheme is paid to the business tax-free but is then taxed through the normal PAYE route when it is paid from the business to the employee. We provide more information in our article "Group Income Protection - how is it taxed?"

Is group income protection a benefit in kind?

No, HMRC's current rules mean that group income protection payments are not considered a benefit in kind and are as such not taxed under P11D benefits.

Can you claim the cost of a group income protection scheme as a business expense?

Yes, group income protection payments are an allowable business expense and as such can reduce a company's corporation tax liability.

What are the benefits of group income protection insurance?

Most businesses provide employment contracts that include sick pay for an agreed period, commonly this is around 10 days beyond which, sick pay usually becomes discretionary. Businesses, particularly new or small businesses may find it difficult to continue paying an employee who is unable to work due to the impact on the business; a group income protection scheme protects against this.

The replacement income paid by the group income protection insurance prevents loss of earnings for the employee and financial loss for the business, especially where the period of sickness is difficult to predict or is prolonged.

How group income protection insurance benefits employers

  • Helps businesses to attract and retain staff
  • Prevents financial loss due to long-term staff sickness
  • Demonstrates a culture that prioritises health and wellbeing
  • Group scheme payments can reduce corporation tax
  • Prevention or reduction of staff sickness achieved through mental and physical health assistance services

How group income protection insurance benefits employees

  • Income security against long-term illness or injury
  • Access to mental health therapies and virtual doctor appointments helps avoid NHS waiting times
  • Employee assistance programmes can provide legal and financial advice as well as medical advice through guidance, information and counselling
  • Rehabilitation services assist with return-to-work transitions

How much does group income protection insurance cost?

The cost of a group income protection scheme is determined by a number of factors and will vary depending on the insurance company you choose. Group income protection schemes are difficult to compare and some will appeal more than others depending on your business needs as well as the makeup of your staff.

Factors used to calculate the price of group income protection insurance

  • The number of employees in the scheme
  • The overall payroll value
  • Employee ages
  • Occupation
  • Location of work
  • Deferred period
  • Cover period

Group income protection schemes can be tailored to what a business needs and different levels of cover can be extended to employees within the scheme. The choices you make will determine how much the group scheme will cost. Policies typically start at just a few pounds per month per employee but can be much more expensive depending on the number of employees in the scheme and the payroll value.

How to source the best Group income protection scheme for your business

Group income protection schemes come with different features and options depending on which insurance provider you buy from. The price will also vary and some providers may offer you more options to tailor the group scheme to the business needs and budget. The best way to search the market is to speak to a specialist group protection insurance adviser* who will gather facts about your business, and provide options and information before sourcing the best schemes and prices for you. The adviser will support you through the whole application process and ensure that all your documentation is correct too.

Is group income protection insurance worth it?

Yes, group income protection schemes add a great deal of value for companies and employees. Aside from the monetary benefit that a group income policy provides, it can offer additional value through enhanced employee benefits that can help recruit candidates for employment, retain staff and increase the sense of care and well-being within a company's staff members.

Alternatives to group income protection insurance

Businesses that wish to protect themselves and their employees against unexpected illness or injury have very few alternatives to group income protection to do this.

Of course, a business can build contingencies within its financials to allow for the unexpected absence of an employee but it is difficult to predict the impact of such absences meaning even the best-laid plans could fall short of providing the support a business needs in such circumstances.

If a business wants to support an employee who is unable to work over a prolonged period, it may struggle to do so and state benefits are usually a very small fraction of the earnings needed. Generally, most line managers will lack the expertise to provide rehabilitation support that ensures a healthy return to work - Group income protection takes the uncertainty out of this for businesses.


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