Percentage-of-salary cover
Benefit set as a percentage of gross salary, typically 50% to 75%, scaling automatically as employees are paid more. The most common structure.
Group income protection pays a percentage of an employee's salary if they cannot work due to illness or injury, with rehabilitation support that helps people return to work and protects you from the cost of long-term absence.
Important: Group income protection has a layered tax position involving both the company and the employee. Tax treatment depends on the specific policy structure and individual circumstances and may be subject to change. Always seek independent advice from a qualified tax consultant before proceeding.
A group income protection scheme is owned and paid for by the employer. If a covered employee is unable to work due to illness or injury for longer than the scheme's deferred period, the insurer begins to pay a monthly benefit which the employer then passes on to the employee through payroll.
Benefits are typically structured as a percentage of gross salary, most commonly 50% to 75%, with some schemes offering up to 80%. The benefit can also include cover for employer National Insurance and pension contributions on top.
The deferred period is the waiting time before benefit payments start. Standard options are 4, 13, 26 or 52 weeks, and the right choice depends on how long the company pays full sick pay. Longer deferred periods reduce premiums.
The benefit can be limited to a defined period (commonly 2 or 5 years) or paid for as long as the employee is unable to work, up to a chosen retirement age. Limited-term schemes cost less but provide a cliff edge if claims run on.
Modern group IP schemes are not just an insurance payout. Insurers provide early-intervention rehabilitation services, EAP access, mental-health support and return-to-work programmes. The aim is to help employees recover and return, not just to pay out.
Group income protection has a layered tax position, with separate treatment for the premium and the benefit. Used correctly, it is one of the most tax-efficient ways for an employer to protect a workforce against long-term illness.
Premiums paid by the employer are typically treated as an allowable business expense, reducing the company's corporation tax bill. This is subject to the "wholly and exclusively for the purposes of the trade" rule.
Group income protection premiums paid by the employer are not normally treated as a P11D benefit-in-kind, so the employee pays no income tax on the cost of the cover provided to them.
On a valid claim, the insurer pays the benefit to the employer. The employer then continues to pay the employee through payroll, with income tax and National Insurance deducted in the normal way. To the employee, it looks and feels like ongoing salary.
Many schemes allow the benefit to include cover for the employer's NIC liability and employer pension contributions. This means the company is not out of pocket on those costs during the claim period.
We compare group income protection schemes from all major insurers and recommend the structure that best fits your workforce, your sick-pay policy and your wider employee benefits strategy.
Benefit set as a percentage of gross salary, typically 50% to 75%, scaling automatically as employees are paid more. The most common structure.
Benefit pays for a defined period, typically 2 or 5 years, after which it stops even if the employee remains unable to work. Lower premium, but a hard end-point.
Benefit pays for as long as the employee is unable to work, up to a chosen retirement age. More expensive, but removes the cliff edge of limited-term cover.
Standard deferred periods of 4, 13, 26 or 52 weeks. We help align the deferred period to your contractual sick-pay arrangements so cover begins exactly when needed.
Optional uplift to include the employer's National Insurance and pension contributions in the benefit, so the company is not left funding those costs during a long claim.
Most modern schemes include an Employee Assistance Programme, early-intervention rehabilitation services and mental-health support as part of the standard package.
Group income protection is suitable for any employer who wants to protect its workforce, and its own balance sheet, against the cost of long-term illness. It is used by businesses of all sizes, from SMEs with a handful of staff through to large corporates. It is particularly valuable in industries where employees rely heavily on regular income and where long-term absence would otherwise be carried by the employer.
Benefit levels are typically structured as a percentage of gross salary, most commonly between 50% and 75%, with some insurers offering up to 80%. The benefit can also be uplifted to include the employer's National Insurance liability and pension contributions, depending on the policy structure and the insurer.
Generally no. Group income protection premiums paid by the employer are not normally treated as a P11D benefit-in-kind for the employee, so the employee pays no income tax on the cost of the cover provided to them. This sits in contrast with personal income protection, which the individual pays for from post-tax income.
The deferred period should align with the company's contractual sick-pay provision so the scheme picks up where company sick pay leaves off. For example, if the company pays full salary for 26 weeks, a 26-week deferred period is appropriate. Longer deferred periods reduce premiums but extend the period during which the company carries the cost itself.
Yes, many group income protection schemes can include cover for the employer's pension contribution alongside the salary benefit, ensuring the employee's long-term retirement provision is not interrupted by a period of illness. This is subject to policy terms, insurer appetite and underwriting. We'll identify the insurers that accommodate it.
On a valid claim, the insurer pays the benefit to the employer. The employer then continues to pay the employee through payroll, subject to PAYE and National Insurance in the usual way. From the employee's perspective, this means they continue to receive a regular monthly income that is treated like salary for tax and reporting purposes.
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