Income Protection continues to be an enigma in many workplaces. “What is it?”, “What does it do?”, “Why do I need it?” are typical responses IFAs hear when they utter the words…”Have you ever thought about protecting your workforce with Group Income Protection?”
But, it’s high time the record was set straight around a few things. So, let’s dispel some of the most common misconceptions your clients may have around Income Protection.
It’s a frequent misunderstanding that employers don’t think Income Protection is important. They do, they just don’t know enough about it. In fact according to Which?, it is the one protection policy every working adult in the UK should consider.
Adviser recommendations are key to an employer’s purchasing decision and experience has shown that once an employer is aware that Income Protection covers a percentage of your income if an employee is unable to work due to illness or injury – they soon realise it is one of the most important insurances they can get in place for their employees.
When the costs of running a business are high, business owners can too easily shrug Income Protection off as not essential. This is a dangerous misunderstanding. Unfortunately, illness and injury do happen. In fact, their employees are 3 times more likely to go on long-term sick leave than they are to die during their working life1. But while many employers are happy to put Life Insurance in place to protect their employee’s families financially against death, just 10% of people have Income Protection, the one insurance that continues to provide a percentage of an employee’s salary if they were to go on long-term sick leave2.
Case study: Kate didn’t have Income Protection when an insect bite turned into septicaemia and left her hospitalised. Here she tells her story about what she calls the “harsh reality” of her financial situation.
It doesn’t. Income Protection is often confused with products such as Payment Protection Insurance (PPI) and Mortgage Payment Protection Insurance (MPPI) which cover specific repayments that can’t be made due to illness, injury or redundancy. However, unlike Income Protection, these payments stop after a limited time – usually 12-24 months. Income Protection payments cover a percentage of your income and can be arranged to continue until you return to work or retire.
Many employers wrongly think their employees don’t value benefits such as Income Protection – opting instead for laptops, extra holiday dates and gym membership. But with 77% of employees admitting to feeling financially insecure, knowing they’ll get a replacement income if they’re ill or injured is something they’re likely to care about3.
And, while Income Protection is available for individuals to take out themselves, offering it through the workplace means employers can offer a benefit that is more affordable due to the spread of risk, available to people with previous medical conditions and accessible to employees who don’t have an IFA to buy from.
Most employers don’t realise what would happen if their employees were to go on long-term sick leave. In fact, although many of them go further, they are only obliged to pay Statutory Sick Pay for 28 weeks. The State benefit that then kicks in only pays around £5,300 a year for the average person, which is 80% less than the average salary4.
Unlike other benefits such as Life insurance and Private Medical Insurance, Income Protection gives you a return of 48p on every £1 you spend through covering an absent employee’s salary (up to 80%), reducing loss of productivity and recruitment costs (by getting employees back to work quicker) and freeing up HR time and effort that typically goes on absence management. Income Protection can also cover National Insurance and pension payments, which is important now given every business will go through auto-enrolment by 2018.
It can also help with wellbeing and resilience – two subjects that are currently at the forefront of your clients’ minds. And with stress and mental illness now the number one cause of absence in the UK, the fact that most Income Protection policies offer an Employee Assistance Programme (EAP) and rehabilitation included in the cost is more important than ever.
There are various different levels of benefit available – starting from around £17* per employee per month for Sick Pay Insurance (a form of Income Protection specifically designed to tackle the problems associated with short-term absence) to more comprehensive long-term cover at around £34* per employee per month – helping to attract and retain highly-valued employees. This is a big difference when compared to benefits such as Private Medical Insurance which typically start from £50 per employee per month6.
Simply, Income Protection is the insurance that employers can put in place whatever their budget to protect their workforce should they suffer from short-term or long-term sickness absence – and ensures your clients have peace of mind in the good times and adequate protection in the bad times.
*This is an illustration only. Costs will vary for companies with different demographics and benefit levels. Terms and conditions apply.
1 ONS Business Populations Report, 2013; Swiss Re Group Watch Report, 2015
2 Unum analysis, based on private sector workers with employer-paid Group Income Protection schemes, 2011
3 Research commissioned by Unum from Populus and Economist Intelligence Unit (EIU), 2013
4 DWP (based on a weekly rate of ESA + WRAC), 2014
5 CEBR ROI model, March 2012
6 Money Saving Expert, March 2015