Seen as a financial benefit which pays a replacement salary to employees who are absent from work long term, it has evolved over recent years to provide much more than just financial protection for the employee. Perhaps it’s time to take the socks off?
The product in its most traditional form, disability insurance providing a replacement income until retirement, has a reputation for being expensive and therefore affordable for only a select few employers.
Yet in recent times of austerity where the state benefits system is under pressure and disability benefits have suffered reductions, there has never been a more important time for employers to think about group income protection.
Things have changed
Group income protection is no longer a benefit only bought by larger employers who can afford to insure an employee’s replacement income until retirement. Insurers now offer limited payment periods that provide replacement income to employees for a specified amount of time, typically 2, 3, 4 or 5 years, which is helping to significantly reduce the cost.
And although by doing this the employee only receives a replacement income for a smaller period of time, considering state benefits aren’t what they used to be, surely some benefit is better than none? What’s more, you could argue that it’s also a better fit with employees’ typical career moves and length of service, as they are no longer staying in one business until retirement.
Let's look at cost
As well as introducing the benefit payment period, there are other features of the product that can reduce the cost for employers, as this example shows.
If we look at a quote for a traditional level of income protection benefit, for example 75% of salary, 2.5% escalation, 28 week deferred period and payments continuing to retirement age, for a company of 14 employees that would set the employer back £7,566 annually.
Yet, if we look at a basic benefit quote, for example 50% of salary, no escalation, 28 week deferred period and payments only continuing for three years, it would cost the same employer £1,307 per year.
The difference in cost is significant. By introducing a limited payment period and tweaking the other product features, income protection is revitalised into a product that’s within reach for smaller businesses, allowing them to offer a replacement income to employees should they become seriously injured or sick.
When you think group income protection, do you think it’s simply an employee benefit? If so, then you should think again. Insurers now offer free services included within the product that provides value to employers and the business too. Group income protection now makes good business sense.
Many products now come with an employee assistance programme that alongside support for employees, also helps managers deal with a range of business issues, from absence management to people matters. For smaller businesses especially, having such a resource on-hand, available when needed, can be more than useful.
It doesn’t stop there. Most insurers now support employers dealing with the early stage of an absence which often includes funding for treatments that the employee may need to help them return to work. This comes as employees, employers and insurers all want the same thing, to return an employee to work as soon as they are fit and well enough.
Including early medical assistance, and services such as case management (providing tailored, appropriate support and rehabilitation to absent employees) ultimately benefits employers and businesses as well as the employee. In turn, as long term absences are reduced, so are claims, making group income protection even more cost effective for employers.
In a nutshell
Income protection is no longer a benefit that’s only fit for larger employers. With the introduction of limited payment periods, employers are able to specify how long they want employees to receive a replacement income at a cost that’s within their employee benefits budget.
What’s more, it’s not simply an employee benefit anymore, it’s a business benefit too. With income protection products now offering immediate business benefits such as employee assistance programmes, early intervention and rehabilitation, employers can benefit almost instantly from a product that is traditionally viewed as only providing a benefit to the employee.
So now that group income protection no longer looks like your grandad’s go to footwear on holiday, maybe it’s time the product was a little more understood and loved once again.