Group Income Protection
Keep paying people
who cannot work.
Group income protection pays a proportion of an employee's salary if illness or injury keeps them off work long term. Your company holds the policy and pays the premiums; the insurer pays the benefit to you, and you pass it to the employee through payroll.
It also removes an uninsured liability most employers do not realise they are carrying: the decision to keep paying a valued employee long after contractual sick pay has run out.
Covering a single director instead? Executive income protection is the single-life version →
What is group income protection?
Group income protection is an employer-arranged scheme that replaces part of an employee's earnings when they are unable to work because of illness or injury. Cover typically runs at 50% to 75% of salary, and can include employer National Insurance and pension contributions on top.
The employer is the policyholder throughout. The insurer pays the company, and the company continues to pay the employee as earnings through payroll, deducting PAYE and National Insurance in the normal way. The employee remains employed while the benefit is being paid.
That last point is often the real value. It keeps the relationship intact, keeps the person connected to the workplace, and makes a return to work far more likely.
Deferred periods and payment terms
The deferred period is how long an employee must be absent before benefit starts, typically 13, 26 or 52 weeks. It should be set to dovetail with your company sick pay, so the benefit begins as sick pay ends rather than leaving a gap or overlapping and paying for cover you do not need.
The payment term is how long benefit continues once a claim starts. Full-term cover pays until recovery, retirement or scheme end. Limited-term cover pays for a capped period, commonly two or five years, and costs considerably less.
Limited-term schemes are increasingly common and are a reasonable compromise on budget, but be clear about what they mean: for an employee with a genuinely long-term condition, the benefit stops while the incapacity continues.
Rehabilitation and early intervention
This is the part employers most often underestimate. Modern group income protection is not simply a cheque-writing service, insurers fund early intervention because getting someone back to work is cheaper than paying a claim for years.
Typical support includes an early absence notification service, access to occupational health and vocational rehabilitation, funded physiotherapy or talking therapies, and practical help with phased returns and workplace adjustments.
Many employers report the rehabilitation service delivers more day-to-day value than the claims themselves, because it shortens ordinary absences that would never have reached the deferred period.
How the benefit is taxed
Premiums are normally an allowable business expense for corporation tax where they meet the wholly and exclusively test, and cover is not usually treated as a taxable benefit in kind for employees, unlike company-paid private medical insurance.
When a claim is paid, the money goes to the company and is passed to the employee as earnings, so income tax and National Insurance apply exactly as with normal salary. That is why schemes commonly insure employer NI and pension contributions as well: the employer keeps incurring those costs while the employee is absent.
Tax treatment depends on your individual circumstances and may change in the future.
What drives the premium
Pricing reflects the number of employees, age profile, salary roll, occupational mix, the benefit percentage, the deferred period, the payment term and any claims history. Longer deferred periods and limited payment terms reduce cost significantly.
As with other group risk products, a free cover limit usually applies, so most employees are covered without individual underwriting. Any figure quoted before a formal scheme quotation is illustrative rather than a price.
Cover Your Family is not FCA regulated and does not arrange schemes. A separate, FCA-regulated adviser will design the scheme around your sick pay policy and obtain quotations, at no cost to your business.
Who needs it
You should consider group income protection if…
- ✓You would keep paying a valued employee well beyond contractual sick pay
- ✓Long-term absence would materially damage your finances or your team
- ✓Your sick pay policy ends after a few months with nothing after it
- ✓You employ people in roles where injury or burnout is a real risk
- ✓You want occupational health and rehabilitation support you could not fund alone
- ✓You are competing for staff against employers with stronger benefits
Key benefits
Why it matters
Turns an open-ended liability into a premium
Rather than informally funding long-term absence from trading income, the cost becomes a known, budgeted figure.
The employee stays employed
Benefit is paid while the person remains on the payroll, keeping the relationship intact and making a return to work far more likely.
Rehabilitation support included
Insurers fund early intervention, occupational health and phased returns, which often shortens ordinary absences before a claim ever arises.
Can cover NI and pension contributions
The scheme can insure employer National Insurance and pension contributions, so those costs do not fall on reduced trading income.
Not usually a benefit in kind
Cover is generally not taxable for employees, unlike company-paid private medical insurance. Tax treatment depends on your individual circumstances and may change in the future.
Little underwriting for most staff
A free cover limit means the majority of employees are covered without answering any medical questions.
Key considerations
Things to weigh up before you apply
Group Income Protectioncan be valuable, but it isn't right for everyone in every situation. Cover is subject to underwriting, and a policy only pays out if it is kept up to date and set up correctly, so it's worth understanding the limitations before you decide.
- !The benefit is paid through payroll as earnings, so the employee receives it net of tax and National Insurance.
- !Limited-term schemes stop paying after two or five years even if the incapacity continues.
- !Nothing is paid during the deferred period, so company sick pay has to bridge it.
- !It is the most expensive of the group risk products, because long-term absence is relatively common.
- !Benefit above the free cover limit needs individual underwriting or cover can be restricted at claim.
- !Cover ends when employment ends, so it does not follow the employee.
FAQ
Common questions about group income protection
Protect your people and your payroll
Free advice from a separate, qualified adviser. No fees, ever.
Get my free consultation →