Income Protection (Replacement Income Should an Employee Become Ill or Injured)

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Issue 4: Income Protection (Replacement Income Should an Employee Become Ill or Injured)

In today’s fast-paced and unpredictable world, employee benefits play a crucial role in attracting and retaining top talent. One of the most important benefits that employers can offer is Income Protection, also known as income replacement. This benefit is designed to provide employees with a replacement income in the event that they are unable to work for an extended period due to illness or injury.

Income Protection offers peace of mind to employees by assuring them that their earnings and families are safeguarded in case of the unexpected. With the continuous reduction in state financial support for long-term illness, having an Income Protection plan in place has become increasingly essential for employees.

The statistics speak for themselves

Recent statistics from employeebenefits.co.uk reveal that only 15% of employees have taken out their own income protection, leaving a large portion of the workforce vulnerable to financial hardship in the event of illness or injury. Shockingly, a quarter (26%) of working individuals in the UK have less than £1,000 in savings or no savings at all, with 19% indicating that they would have to rely on their partner’s income to cover expenses if they were unable to work.

Furthermore, the same research indicated that a concerning 49% of employees stated that they would only be able to survive for up to four months without their regular income. These numbers highlight the importance of Income Protection as a vital component of a comprehensive employee benefits package.

Additionally, an ongoing concern in the UK for employees is the rising incidence of cancer, with cancer rates in the UK increasing by 40% since 2002, according to statistics from Macmillan Cancer Support. This alarming trend underscores the importance of having robust benefits, such as Income Protection, in place to support employees during challenging times of illness or injury.

As an employer, offering Income Protection can not only attract, engage, and retain employees but also help you stay competitive in the job market by aligning the company’s benefits with those of your direct competitors. Research commissioned by GRID, the trade body for the group risk sector, indicates that one in five employers express concerns about chronic long-term illnesses among their workforce, highlighting the need for comprehensive benefits like Income Protection.

Government Legislation

As well as helping to cover the cost of employee absence, it is important to note that government legislation expects employers to provide assistance to employees dealing with illness or injury. Insurers typically offer rehabilitation services aimed at facilitating the employee’s return to work more quickly, along with early intervention support and preventative ancillary benefits such as assistance counselling. These comprehensive services not only benefit the employee but also help reduce the impact of absence for the employer.

A tax deductible expense

It is important to note that premiums paid for Income Protection are considered tax-deductible expenses, allowing employers to offset the cost against profits and effectively reduce corporation tax liabilities. This presents a financial incentive for employers to invest in employee well-being through benefits like Income Protection.

For professional office-based employers, a common practice is to provide a replacement income based on the standard insurable maximum of 75% of the employee’s salary, payable after a waiting period of 13 or 26 weeks of absence. However, this coverage can be tailored to meet specific needs, with some employers also covering pension contributions and national insurance payments. Traditionally, and particularly for executives, coverage was structured to continue until the employee returned to work or retired. However, there is now the option to include set payment terms of 3 or 5 years which reduces insurer liability makes this valuable benefit more affordable.

Depending on the staff headcount, an automatic cover level is typically included in Income Protection plans without the need for employees to undergo medical assessments. The pricing process is often streamlined, requiring staff data to be provided just once a year, simplifying administrative tasks for employers.

Tailored Pricing

The pricing of Income Protection plans is primarily determined by factors such as the presence of long-term absentees, the desired level of coverage, scheme demographics, claims history, business travel patterns, and the nature/location of the business. These variables influence the cost of the plan and help tailor it to the specific needs of the organisation and its workforce.

While pricing rates are typically guaranteed for a period of two years, it is advisable to review the plan annually to ensure that it remains aligned with the evolving needs of the workforce. This review process also allows for consideration of individual insurer propositions and ancillary benefits, optimising the plan to provide comprehensive coverage for employees.

As part of our standard approach, we prioritise the inclusion of communication materials to ensure that employees are well-informed about the protection they have in place. By keeping employees aware of the benefits available to them, we aim to enhance their understanding of the support provided and empower them to make informed decisions regarding their well-being and financial security.

Contribute to a positive workplace culture today

By understanding the various components and benefits of Income Protection, employers can make informed decisions that not only support their employees’ financial security and well-being but also contribute to a positive workplace culture and financial efficiency. Investing in Income Protection is a strategic choice that can yield long-term benefits for both employees and employers, fostering a resilient and productive workforce while mitigating the financial risks associated with employee absence due to illness or injury.

In addition to providing financial support during periods of absence, having Income Protection in place also helps you meet government expectations to assist employees dealing with illness or injury. Insurers typically offer rehabilitation services aimed at facilitating the employee’s return to work promptly, along with early intervention measures to address health issues before they escalate.

In conclusion, Income Protection is a vital component of a comprehensive employee benefits package that addresses the evolving needs of today’s workforce. By proactively addressing the challenges posed by illness or injury, you can safeguard your employees’ financial stability, promote their overall well-being, and set your organisation apart as an employer of choice in a competitive talent market.

For more information or an informal chat to one of our Employee Benefit advisers contact us today.

Stay tuned for the next part of our series on Understanding Employee Benefits, where we will delve into another essential aspect of employee well-being.