Group income protection (IP) is seen by many as the most expensive of all group risk contracts, often pricier than group life and critical illness. But cost alone needn’t deter employers from taking out this valuable cover if they consider the savings it can help them achieve.
Take the costs of sickness and absence to UK employers. Recent Confederation of British Industry statistics show the average direct sickness/ absence cost per employee per year has risen to £4341.
For a workforce of 250 that could result in a hit of £108,000 on the employer’s bottom line. When the indirect costs – recruitment, retraining, drop in staff morale, business disruption, customer dissatisfaction and possible loss of business – are added, the costs could be closer to £250,000. Some 40 per cent1 of those costs are attributable to long-term sickness – the very thing group IP cover addresses.
How expensive is Group IP? Based on a workforce of 250 mainly white-collar workers with an average salary of £25,000 the cost would be around £47,0002 a year. And that’s before the employer gets tax relief on his contribution. With 40 per cent full expenses relief, the net cost to the employer would drop to £28,200.
The days of group IP cover just paying benefits on valid claims have long gone. Most providers these days provide an active claims management service to help manage employees back to health and to work wherever possible. This brings financial benefits by helping reduce an employer’s long-term sickness costs, while improving the claims experience and feeding through to the group IP rates offered.
The decision on whether to take it out should not be based on cost alone but also on the services offered to help address the business issues surrounding long-term sickness.
1 Source: 2001 Labour and Absence Survey 2 Depending on the age and occupation profile of the membership, and claims experience.