Contact Wiltshire Friendly today
What are the two different types of Group Income Protection insurance?
Employees are a business’s greatest asset. Group Income Protection for businesses is a valuable benefit to attract and retain employees, which is becoming increasingly important. Designed to help employers support sickness absence more effectively, Group Income Protection insurance usually pays up to 75% of an employee’s income if their illness or injury prevents them from working.
Employer funded Group Income Protection
Employer funded Group Income Protection enables you as an employer to pay employees a proportion of their earnings if they are unable to work due to illness or accident.
In this type of Group Income Protection, the income replacement benefit is claimed by and paid to you the employer, before being passed on to the employee through normal payroll.
Employer funded income protection not only shows your employees that you care about their wellbeing, but can also help you to meet your financial and legal obligations, such as Statutory Sick Pay and your own sickness scheme financial liability.
You select the level of protection you want to provide to your employees, based on their earnings. At Wiltshire Friendly, our 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.
The maximum benefit you can insure for each employee is 75% of their total earnings, up to a maximum sum insured of £180,000. This can be paid for any length of time from 6 months until the employee reaches state pension age. Benefit payment will stop when the individual returns to work.
If an employee is not fully able to return to work, such as partial rehabilitation, the benefit may still be payable on a proportionate basis.
Group Income Protection premiums paid for by the employer are normally treated as a deductible business expense. Benefit received under a claim is classed as business income and is taxable and when paid under PAYE to an employee is a trading expense, hence tax neutral. (Based on current legislation and HMRC practice.)
Group Income Protection for a small business can be a way of retaining existing staff and attracting new staff. If you are a larger business it could help offset your existing sick pay liability and reduce your sick pay costs.
Employee funded Group Income Protection
It may be the case that you want to make the benefits of Group Income Protection insurance available to your employees but you cannot afford to fund it directly. In this case, you can choose to offer an employee funded version.
Initially, you establish a plan for your employees. The plan is structured and priced based on a Group Insurance model, where the cost and terms options are determined for the entire group of employees. Group insurance pricing typically takes into account factors related to the collective risk and characteristics of the entire employee group.
Whether an employee decides to take out a plan is up to them - they will fund it themselves and choose the benefit options that suit them. This means that each employee is in control of their cover level and they will receive the benefit directly, with no personal tax to pay (under current tax rules).