Group Income Protection UK: The Employer’s Guide
Group income protection pays your employees 50–70% of salary when long-term illness stops them working — taking the cost of long-term absence off your payroll and putting it onto an insurer, typically for 0.5–2% of covered payroll. This guide covers how schemes work, the tax treatment (kinder than PMI’s), the rehabilitation support insurers throw in because they want people back at work, and how to design a scheme that doesn’t cost more than it needs to.
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Quick Answer
Group income protection (GIP) is employer-funded salary continuance insurance. When an employee is off sick beyond the deferred period (commonly 13, 26 or 52 weeks — usually set to when your sick pay ends), the insurer pays 50–70% of their salary to you, and you pay it to them through payroll until they return, the payment term ends, or they retire.
The tax shape is favourable: premiums are usually an allowable business expense, cover is not normally a P11D benefit in kind (unlike health insurance), and claim payments are simply taxed as earnings through payroll.
The part employers underrate: insurers bundle early-intervention and rehabilitation services — vocational rehab, physio pathways, mental health support, phased returns — because they profit when people recover. You’re buying an absence-management department, not just a payout.
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How Group Income Protection Works
The employer owns the policy, pays the premiums and makes the claims. The flow: an employee’s absence approaches the end of the deferred period → you notify the insurer → the claim is assessed against the scheme’s definition of incapacity → accepted benefits are paid to you and passed to the employee through payroll as salary continuance. Cover ends when employment ends — it doesn’t travel with the employee, and a condition developed while covered may be excluded as pre-existing from any personal policy they buy later. (If your scheme documents or older contracts say “group PHI”, it’s the same product — permanent health insurance is the historic name.)
One distinction worth making early: GIP replaces income. It doesn’t pay for treatment — that’s business health insurance — and it isn’t a death benefit, which is group life insurance. The three cover different risks and are commonly bought together.
Scheme Design: the Four Decisions That Set Everything
| Decision | Options | Cost effect |
|---|---|---|
| Benefit level | 50–70% of salary; some schemes add pension contributions and employer NI funding | Lower % = cheaper; taxable-benefit maths means 60% taxed lands near half of take-home |
| Deferred period | 13 / 26 / 52 weeks, matched to your sick pay | Longer deferral = substantially cheaper |
| Payment term | Full-term (to recovery/retirement) or limited 2–5 years per claim | Limited-term is the single biggest premium reducer |
| Who’s covered | All staff, categories (e.g. management), or named members | Category schemes cut cost but create fairness questions |
The design trap: choosing the cheapest configuration (52-week deferral, 2-year limited term, 50%) and discovering at claim time it protects less than staff assumed. Whatever you choose, say clearly in your benefits comms what the scheme does and doesn’t do.
The Tax Treatment — Kinder Than PMI’s
- Premiums: usually an allowable business expense for corporation tax
- Benefit in kind: not normally a P11D benefit for employees — a genuine advantage over health insurance, which is
- Claims: paid through payroll and taxed as earnings (income tax + NI) — which is why benefit percentages are set below 100%: 60–70% taxed roughly restores normal take-home
- Rules change: HMRC guidance and your accountant are the authoritative sources — this page describes the standard shapes
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What Group Income Protection Costs
Quotes are scheme-specific, but UK GIP commonly lands around 0.5–2% of covered payroll, set by age profile, occupations, salaries, benefit level, deferred period and payment term. Two worked intuitions:
- A young office workforce, 26-week deferral, 60% benefit, 5-year limited term → bottom of the range
- An older or manual workforce, 13-week deferral, 70% full-term with pension funding → top of it, or above
Schemes are available to genuinely small companies — many insurers quote from around 3 employees — and for micro-teams the comparison worth running is a group scheme vs individual policies, the same trade-off as in group cover for directors. Set the cost against what absence already costs you: UK estimates run £600–£900+ per employee per year before replacement cover and lost output — the maths in our absenteeism guide — and remember GIP specifically caps your exposure to the expensive tail: the multi-year absence that would otherwise be an open-ended payroll decision.
The Rehabilitation Angle — What You’re Actually Buying
The insurer pays as long as the employee is off — so insurers invest hard in getting people back:
- Early intervention: support often starts during the deferred period, before any benefit is paid
- Vocational rehabilitation: case managers, workplace adjustments, phased return-to-work plans
- Clinical pathways: physiotherapy for musculoskeletal absence; structured mental health support for stress, depression and anxiety — consistently among the top causes of GIP claims (see stress and health at work)
- Bundled services: most schemes include an employee assistance programme and wellbeing tools for the whole workforce, claimants or not
For an SME without an HR department, this is often the most valuable part of the purchase: professional long-term absence management you couldn’t buy standalone at the price.
Providers
The established UK group risk market: Unum (the longest-standing specialist), Aviva, Legal & General, Zurich, Canada Life and MetLife. Premium comparisons miss most of the difference between them — the real variance is in rehabilitation services, mental health support depth, limited-term options, free cover limits and the bundled extras. Comparing schemes on structure is the same discipline as comparing business health insurance: match the design, then compare the price.
Where GIP Fits in a Benefits Package
The classic protection stack for a UK SME, in the order most build it: group life (cheap, expected) → business health insurance (the visible, daily-value benefit) → group income protection (the deep-risk layer) — with relevant life for director-specific life cover. GIP is the least glamorous and the most structurally important: it’s the one that answers “what happens if someone’s off for two years?” Positioning it inside a benefits package and wellbeing strategy — and actually telling staff it exists — is how it earns its retention value. Self-employed with no employer to provide it? The personal route is covered in protection for the self-employed and the product mechanics in life, CIC and income protection compared.
Frequently Asked Questions
What is group income protection?
Group income protection (GIP) is an employer-funded insurance policy that pays a proportion of an employee’s salary — typically 50–70% — when long-term illness or injury keeps them off work beyond a chosen deferred period. The employer owns the policy and pays the premiums; when a claim is accepted, the insurer pays the employer, which passes the benefit to the employee through payroll as salary continuance. It’s also known as group PHI (permanent health insurance) in older scheme documents and employment contracts.
How much does group income protection pay and for how long?
Schemes typically insure 50–70% of gross salary, and some designs additionally fund employer pension contributions and National Insurance on the benefit. Payments start after the deferred period — commonly 13, 26 or 52 weeks, usually aligned to when company sick pay ends — and continue either until return to work, retirement or death (full-term schemes), or for a limited payment period of two to five years per claim, an increasingly common design that significantly reduces premiums.
How is group income protection taxed in the UK?
For the employer, premiums are usually an allowable business expense for corporation tax. The cover is not normally treated as a P11D benefit in kind for employees — unlike private medical insurance. When a claim is paid, the benefit passes through payroll and is taxed as normal earnings, with income tax and National Insurance deducted. Tax rules can change and depend on scheme structure, so HMRC guidance and a qualified accountant are the authoritative sources for a specific case.
How much does group income protection cost an employer?
Pricing is quoted per scheme, but UK group income protection commonly lands in the region of 0.5–2% of covered payroll, driven by the workforce’s age profile, occupations, salary levels, the benefit percentage, the deferred period and whether payments are full-term or limited to two to five years. Longer deferred periods and limited payment terms are the two biggest levers for reducing cost, and schemes are available to small companies — many insurers quote from around three employees.
What happens when an employee claims on group income protection?
The employer notifies the insurer as the deferred period approaches its end, the insurer assesses the claim against the scheme’s definition of incapacity, and accepted benefits are paid to the employer for distribution through payroll. In practice good insurers get involved earlier than that: most group schemes include early-intervention and rehabilitation services — vocational specialists, physiotherapy pathways, mental health support and phased return-to-work planning — because the insurer has a direct financial interest in helping people recover and return.
Does group income protection cover mental health absence?
Yes — mental health conditions such as stress, depression and anxiety are consistently among the leading causes of group income protection claims in UK insurers’ published data, alongside musculoskeletal conditions and cancer. Claims are assessed against the scheme’s incapacity definition, and most insurers pair the insurance with mental health support services and employee assistance programmes aimed at intervening before absence becomes long-term.
What happens to cover when an employee leaves the company?
Group income protection cover ends when employment ends — it does not move with the employee to a new job. An employee who developed a health condition while covered may find that condition treated as pre-existing by any personal income protection policy they later apply for, which is a genuine gap worth employees understanding. Some insurers offer continuation options in limited circumstances, but portability should never be assumed — the scheme’s terms are the reference.
Which insurers provide group income protection in the UK?
The established UK group risk market includes Unum, Aviva, Legal & General, Zurich, Canada Life and MetLife, with Unum among the longest-standing specialists. Schemes differ meaningfully on rehabilitation and early-intervention services, mental health support, limited-term options, free cover limits and the added-value services bundled alongside the insurance — which is why comparing group schemes on premium alone misses much of the difference.
ℹ Important Disclaimer
This guide is general information for UK employers about how group income protection typically works, not financial, tax or legal advice, and not a recommendation of any product or insurer. Scheme designs, definitions of incapacity, benefit levels, eligibility, free cover limits and tax treatment vary between insurers and change over time — always review scheme documents and take advice from an FCA-regulated adviser on cover decisions and from a qualified accountant on tax and payroll treatment. Going Private UK is an independent publisher and may earn commission from FCA-regulated partners if you compare cover through links on this page, at no cost to you; this does not influence our editorial guidance.
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