Income Protection – unjustly unloved and underused
Income Protection – At Ink, we think it’s a great benefit to provide to staff. However, it seems to be one of the least understood by both employer and employee – but why?
What is Income Protection?
Basically, it’s an insurance policy. It pays out when an employee is sick or absent from work for longer than 6 months.
The policy pays a percentage of an employee’s basic salary directly to the company. The company then pay this amount to the employee each month, just as if they were in work.
Why would employers bother with it?
These days, it’s mainly about helping employees. Employees who (usually), through no fault of their own, cannot work. However, still have bills to pay like their mortgage, council tax, groceries and utilities.
If someone earning a decent wage, say £25,000 per year, was ill and could not work, they would eventually fall onto an equivalent salary of between £3,801.20 and £5,701.80* under the current rules. Could you as an employer live with that?
Many employers provide an element of company sick pay for staff. However, generally this will not last any longer than 6 months. usually employers will not want to pay anything beyond this. In turn, this leaves the employee reliant on the state benefit system.
Why so misunderstood?
In simple terms, Income Protection insurance softens the blow for an employee. The extent to which the blow is softened depends on how the insurance policy is written. The salary payment could pay out for 3 years or it could pay to someone’s state retirement age. The longer the pay-out, the more expensive the insurance. Its worth saying that with a short pay-out period of 3-5 years we are confident employers would see value for money.
Some of the moving parts of the insurance are a bit confusing. There are lots of options to enhance the cover. In simple terms the employer is insuring the risk of their employees falling onto state benefits if they are incapacitated.
So how much does it cost?
It really does depend on the way the insurance is structured. As an illustration, here is a recent example from a small business, based in London:
- 7 staff
- 75% of salary payable after 6 months of absence
- No employee application forms for anyone earning under £100k salary
- Salary payments for 3 years
- Premium £650 per year!
We reckon that’s great value for money. If well communicated to employees it becomes a highly valued benefit.
*figures based on 2017 Employment & Support Allowance (ESA) Work-related support group levels. Other benefits may be available. Values correct at 20/11/17.
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