As a small business owner, when your employees have a prolonged leave of absence due to illness or injury it can cause a lot of additional stress. You wouldn’t want your employee to be panicking about money when they should be taking the time to recover, but equally, you don’t want to be paying out a wage for a job that isn’t getting completed! And you’re not alone in this concern. In fact, a recent CIPD Health and Wellbeing report found that sickness absence is higher than it has been in more than ten years, so the number of business owners that are affected is on the rise!
In this article, we will remind you of what income protection insurance is, explore why it is beneficial for small business owners, share the average costs of income protection insurance for employers and discuss the common misconceptions of income protection insurance.
What is income protection insurance for small businesses?
Business income protection insurance, otherwise known as group income protection insurance, allows employers and small businesses to pay their employees a proportion of their earnings if the worst should happen and they are signed off work due to illness or injury.
It works in a similar way to personal income protection insurance, except the income replacement benefit is claimed by and paid to the business, rather than the beneficiary, before being passed onto them through payroll. Because you take out the policy on the behalf of your employees, you can select the level of protection you provide to them based on their earnings. At Wiltshire Friendly, the maximum benefit you can insure for each employee is 75% of their total earnings, up to a maximum sum insured of £180,000.
Why do small business owners need income protection insurance?
As a small business, offering benefits such as income protection insurance for employees is a vital way of attracting and retaining talent. Keeping your employees happy is huge for small businesses! This type of cover, often referred to as income replacement insurance for businesses, provides some financial support to your employees if they are unable to work due to illness or injury. By implementing group income protection insurance, companies can provide a safety net that can extend beyond statutory or contractual sick pay for businesses.
On top of this, with options such as a group income protection ‘short deferred period’ and a ‘limited benefit term’, small businesses can tailor the policy to align with their specific budget and requirements.
What do we mean by group income protection short deferred period?
A group income protection short deferred period refers to the waiting time between a claim being made and the benefit starting to be paid. A shorter deferred period - such as 4 or 8 weeks - means payments are received much sooner following an illness or injury. Standard deferred periods usually range from 13-52 weeks, so shorter deferred periods are particularly beneficial for small businesses that may not have large cash reserves to cover salaries or other expenses during prolonged absences.
What do we mean by group income protection limited benefit term?
When we say group income protection limited benefit term, we mean that the policy will only pay out for a limited time, such as 6 months, one, two, or five years, as opposed to providing ongoing payments until the policyholder reaches retirement age or returns to work. This option can significantly reduce the cost of premiums while still offering a financial safety net for a specified period. It’s a more affordable way for small businesses to offer cover, particularly if they anticipate that employees will recover within the benefit term. This allows businesses to manage the cost of their income protection policies, while still offering meaningful support during periods of incapacity.
Investing in income protection insurance for business demonstrates a commitment to your employee’s well-being and can enhance your overall employee benefits package. Income protection insurance is a great option for small businesses, as it is an attractive employee benefit that doesn’t need to cost the world!
How much does income protection insurance for small businesses cost?
The cost of group income protection insurance for small businesses depends on several factors. The specific price is initially influenced by the number of employees, their age, their occupation, and the selected terms of the policy (such as the percentage of income covered, the deferred period and the benefit term).
Employers can manage costs by selecting longer deferred periods or limiting the benefit term, which lowers premiums while still providing valuable cover.. This flexibility allows employers to tailor cover to fit their budget while still offering a meaningful benefit to their workforce.
Misconceptions about income protection insurance
Unfortunately, the knowledge of income protection insurance isn’t particularly widespread, and there are a number of misconceptions or misinterpretations about the cover. Let’s explore some in relation to income protection insurances for small businesses!
Income protection insurance costs too much money
As we discussed above, any misconception that income protection insurance is very expensive is not necessarily true. Many factors can impact the cost of the policy of income protection insurance for small businesses, including the industry you operate within, the age of your workforce and your chosen policy terms.
However, employers can control the cost of their income protection insurance by extending the deferred period, limiting the policy term or reducing the amount of income covered.
On top of this, if small businesses want to make the benefits of group income protection available to their employees, but cannot afford to fund it directly, they can select an employee funded plan, rather than an employer funded one. An employee funded plan is set up by the business and is structured and priced based on a group insurance model for the entire group of employees. However, the cost of the policy is funded by the individual employees and they can choose whether or not they want to take out the plan!
Income protection insurance is unnecessary
Without income protection insurance, employees may face financial hardship during longer-term illness or injury, leading to rushed returns to work before full recovery - which could affect productivity, morale and overall business performance.
By offering income protection insurance, small business owners can ensure that their employees are financially supported during periods of incapacity, reducing the strain on the business, and fostering loyalty.
Income protection insurance is the same as life insurance
Income protection insurance could be misinterpreted as the same as life insurance, with employers and small business owners assuming they don’t need one because they already have the other. However, this simply is not true - income protection insurance and life insurance are two very different policies that pay out under different circumstances.
Income protection provides a regular income if you’re unable to work due to illness or injury, helping cover living expenses during your recovery. Life insurance, on the other hand, pays out a lump sum to your beneficiaries in the event of your death, offering financial support to loved ones.
How Wiltshire Friendly can help
Wiltshire Friendly is a specialist income protection provider, with decades of experience in providing income replacement cover to small businesses and their employees, as well as individuals and sports players who are unable to work due to illness or injury.
Our Group Income Protection plans have been designed so that you are able to choose from a range of features and cost-related options to fit within your business and employee requirements.
Please get in touch today to discuss your requirements and discover how we can help you.