What is group income protection — and should your business offer it?

1. What is group income protection?

Group income protection (also called group income replacement or employer-sponsored income protection) is an insurance policy taken out by an employer that pays a regular income to employees who are unable to work due to illness or injury.

Unlike statutory sick pay — which is fixed at a low rate and limited to 28 weeks — group income protection typically replaces 50–75% of an employee's salary and can continue paying until they either return to work, reach retirement age, or the policy term ends.

2. How does group income protection work?

The employer takes out a group policy covering all eligible employees (or a defined group). If an employee is unable to work due to illness or injury for longer than the deferred period, the insurer begins paying a monthly benefit.

The deferred period

The deferred period is the length of time an employee must be absent before the benefit begins. Common deferred periods are 13, 26, or 52 weeks. The longer the deferred period, the lower the premium — so many businesses align the deferred period with the end of their enhanced sick pay entitlement.

The benefit amount

The policy replaces a percentage of the absent employee's salary — typically between 50% and 75%. This is paid to the employer, who then passes it on to the employee as a continuation of their salary (minus any employee NI and income tax contributions, which still apply).

The benefit period

The benefit period is how long the insurer will continue paying the benefit. This can be limited — for example, two or five years — or it can continue until the employee reaches State Pension age. Longer benefit periods offer greater protection but carry a higher premium.

3. Who benefits — and how?

For employees

The most important benefit is financial security. An employee who knows that a serious illness will not result in financial ruin is better able to focus on recovery — rather than worrying about how to pay their mortgage or feed their family. Studies consistently show that employees with income protection return to work faster and more sustainably than those without it.

For employers

Group income protection removes the financial liability of extended sick pay from the employer's balance sheet. It also provides access to rehabilitation services — vocational, medical, and psychological — that many insurers include as standard, which can significantly reduce the duration of absences and support earlier return to work.

4. What does group income protection cover?

Group income protection covers absence due to illness or injury — both physical and mental health conditions. In practice, mental health is now the leading cause of long-term absence in the UK, making this aspect of the cover particularly valuable.

Conditions typically covered include:

• Serious physical illness — cancer, cardiac conditions, musculoskeletal disorders
• Mental health conditions — depression, anxiety, stress-related illness, burnout
• Accidents and injuries resulting in inability to work
• Chronic conditions that prevent sustained employment

Group income protection does not cover redundancy, resignation, or short-term minor illness. For short-term sickness, statutory sick pay and any contractual sick pay provisions apply before the income protection deferred period is reached.

5. How much does group income protection cost?

Premiums are typically expressed as a percentage of the total insured payroll and vary based on:

• The deferred period (13, 26, or 52 weeks)
• The benefit period (2 years, 5 years, or to retirement)
• The benefit level (50%, 66%, or 75% of salary)
• The age and occupation profile of the workforce
• The size of the group
• The claims history of the scheme (for larger groups)

As a rough guide, premiums typically range from 0.5% to 2.5% of insured payroll. For a business with 10 employees earning an average of £35,000, this might equate to £1,750–£8,750 per year — a modest cost relative to the protection it provides.

6. Group cover vs individual income protection

Employees can purchase individual income protection policies themselves — but group schemes arranged through an employer offer several significant advantages:

• No individual underwriting — group schemes are usually written on a free cover limit basis, meaning employees do not have to provide medical evidence up to a certain benefit level. This is particularly valuable for employees who would struggle to obtain cover individually due to pre-existing conditions.
• Lower cost per person — the buying power of a group means premiums per employee are typically lower than individually purchased policies
• Employer-paid premiums — the employer pays the premium, which is a deductible business expense and not treated as a taxable benefit in kind for employees (subject to conditions)
• Simpler administration — one policy covers all eligible employees, rather than each individual managing their own

7. How to set up group income protection for your business

Setting up a group income protection scheme is straightforward when you work with a specialist broker. The process involves:

1. Define the scope — which employees will be covered? All staff, or a defined group such as senior employees or those past their probationary period?
2. Choose your deferred period — aligned with the end of your contractual sick pay, typically 13 or 26 weeks
3. Set the benefit level — typically 50–75% of salary
4. Choose the benefit period — two years, five years, or to retirement
5. Your broker goes to market — comparing all major providers to find the best terms for your specific workforce
6. Policy is set up and communicated to employees — your broker will provide employee communications to ensure the benefit is understood and valued