As highlighted in a recent article in Health Insurance Daily by Tony Levene, individual income protection policies can be expensive, are often unpopular and the industry should consider an alternative way to provide people with cover; namely via group policies. Group policies are often undervalued and forgotten about but have a number of important benefits.
Group policies are cheap
With costs starting on average from just 0.1% of salary for GLA and 0.25% of salary costs for GIP, group policies are more affordable than you might think.
In the last week I have seen a 15-person cyber security company with a two year limited payment period group income protection (GIP) plan, paying 50% of salary, which cost £635 (0.075% of salary roll) per year – which equated to £42 per employee, or £34 after corporation tax. If £34 per person, per year, is not affordable, I am not sure what is! When extra cover for 8% auto-enrolment pension scheme contributions and employer National Insurance were added, the cost was £760 (0.08% of salary costs, £51 per employee per annum or £41 after tax).
When put in the context of pensions planning, this is a tiny amount to provide a waiver of pension (and National Insurance) contribution, day one outsourced vocational rehabilitation, free employee assistance programmes, free second medical opinion services and free online and telephonic employment support. If advisers are selling pensions and can protect these contributions for one hundred times less than a 2018 auto-enrolment pension contribution, bearing in mind that between 40-50% of employees cease claiming in the first two years, I am stumped as to where the problem in selling this benefit lies.
The need for these products is increasing due to a reduction in state benefits
The first rule of insurance is to identify the need for it. As State benefits reduce, or charges for their administration increase, there is more need than ever for group risk products.
Under the new Universal Credit regime, the Limited Capability for Work element will be abolished to mirror changes to Employment and Support Allowance (ESA), reducing support for those deemed capable of some work-related activity. From 6 April 2017, applicants for ESA who are assessed as unfit for work but capable of work-related activity will receive a lower level of State benefit, equivalent to Jobseeker’s Allowance. This means that the value will fall from £5,312 to £3,801 per year. Can anyone really live on this? Assuming not, then GIP could be the most important benefit any employer will purchase on behalf of its employees, as ongoing salary payments are needed to fund mortgages, household bills, debts, school fees, etc.
The benefit cap is also reducing from 7 December 2016. Currently it provides £500 per week for single parents and couples and £350 per week for single people. From December, the total amount a couple or a single parent can receive in benefits is £442.31 a week (£23,000 per year) in London or £384.62 a week (£20,000 per year) elsewhere.
In simple terms, GIP is needed more than ever. Employees’ mortgages may not be paid, they will be expected to live on £3,801 per year and, even if they do qualify, their quality of life will diminish due to the financial impact of such large reductions. If they have savings of £16,000 or more, they will receive nothing at all from the State, quickly depleting their life savings.
GIP also comes with a raft of support services at no additional cost. This means that should employees end up not using the financial protection part of the product, they still get something out of it – a benefit for employees and employers alike.
Support services such as EAPs provide telephone and face-to-face counselling for employees in the form of 24 hour support and one-on-one sessions. Many providers also offer an expert second medical opinion service that comprehensively reviews diagnoses and treatments. Early Intervention Services (EIS) are an invaluable tool which, when used, mean the average return to work time is just seven weeks, according to Canada Life statistics.
In addition to the financial benefits of group life assurance, we offer bereavement counselling and probate helplines, helping dependents and survivors to cope emotionally and practically with the death of a loved one. Death in service, or spouses’ pensions can provide an ongoing income (in addition to lump sum benefits), for partners or the mutual children of the affected couple. We also offer a business and legal support service that provides employers with practical help and support.
So it’s simple: if you have not considered it before, think about group insurance policies. The alternative is that if you are long term sick and want to continue to maintain you and your family’s quality of life, you cannot rely on the State for more than minimal support.
GIP is the only real option to receive effective support in an ongoing period of reductions in State support. Low cost options mean that price is certainly not a barrier to an opportunity for great peace of mind, improved retention and stronger attraction for new staff.
Paul Avis is marketing director of Canada Life