Group Income Protection UK

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What Is Group Income Protection?

Group income protection is an employer-paid policy that replaces a percentage of an employee’s salary if they are unable to work for a long period because of illness or injury. It sits inside the wider group protection family, alongside group life insurance (death in service), group critical illness cover, and group private medical insurance.

The policy is owned by the employer, premiums are paid by the business, and if a claim is accepted the insurer pays the benefit to the employer, who then pays the employee through PAYE as normal. The employee does not pay the premium. The employer gets a productivity, retention and cost-of-absence tool that would cost far more to replicate through statutory sick pay alone.

For UK limited company owners, group income protection is one of the few employee benefits that almost always pays back more than it costs. It reduces long-term sickness exposure, keeps statutory sick pay costs down, and most modern schemes bundle mental health support, rehabilitation and return-to-work services as standard.

How Group Income Protection Works

There are three parties in every group income protection scheme: the employer, the employee, and the insurer. The mechanics are simpler than most employers expect.

For the employer

The employer chooses who is covered (all staff, a category such as all employees with 2+ years service, or a named group such as directors and senior managers).
The employer chooses the benefit level (typically 60 to 80% of salary), the deferred period (usually 13, 26 or 52 weeks), and the benefit period (to state pension age, or a fixed term such as 2 or 5 years).
The insurer gives a scheme premium based on the payroll covered, the industry risk rating, the age profile of the workforce, and the benefit design.
The employer pays premiums monthly or annually. Premiums are typically treated as an allowable business expense for corporation tax.
If an employee goes off sick and the absence exceeds the deferred period, the employer submits a claim. The insurer underwrites the claim, often with occupational health input, then pays the benefit to the employer who pays it to the employee via payroll.

For the employee

The employee does not own the policy, does not pay the premium, and in most cases does not submit the claim themselves. What they get is income continuity. If illness or injury takes them out of work for longer than the deferred period, a percentage of their salary keeps being paid. Many schemes also give them access to mental health support, physiotherapy and rehabilitation from day one of absence, not just from the point benefits start.

Group income protection is not “sick pay on steroids”. It is a structured insurance product with underwriting, claim definitions, and return-to-work obligations. Employees need to know what is and is not covered. Knox walks employee benefits committees through the scheme document before launch.

Why Employers Offer Group Income Protection

Five reasons, all of them commercial.

Retention. Long-term sickness without income support is one of the quickest ways to lose a good employee. Group income protection removes the financial cliff edge when someone is signed off for months.

Recruitment. Benefits packages matter. Graduate hires, senior hires, and specialist roles increasingly ask about income protection, death in service and critical illness cover. A business with group protection in place wins candidates against a business without.

Statutory sick pay reduction. Employers are obliged to pay statutory sick pay. A well-designed scheme with rehabilitation support tends to shorten absences, which reduces SSP cost and backfill cost.

NI cost recovery. If the scheme is structured so the insurer reimburses employer National Insurance contributions and pension contributions during a claim, the employer is not left funding a “phantom” employee.

An engaged workforce. Mental health support, employee assistance programmes and digital GP services bundled into modern policies are used by employees whether they claim or not. The ROI shows up in reduced short-term absence, not just long-term claim payouts.

Benefit Structure

The benefit design decisions sit with the employer. The right answers depend on cashflow, industry, workforce demographics and appetite for cost.

Design lever	Typical range	What it changes
Benefit level	50 to 80% of salary	Higher benefit, higher premium, better retention
Deferred period	4, 13, 26, 52 weeks	Longer deferral, lower premium, more SSP exposure
Benefit period	2 years / 5 years / to state pension age	Longer period, higher premium, more long-term certainty
Escalation	Level / RPI / fixed 3 to 5%	Inflation-proofs a long claim, raises premium
Cover base	Salary only / salary + bonus / salary + dividends	Wider cover base, higher premium and higher claim
NI and pension continuance	Included / excluded	Protects “employee on books” cost during claim

A common mid-market design for a UK SME: 75% of salary, 26-week deferred period, benefit period to state pension age, RPI escalation capped at 5%, employer NI and pension continuance included. Knox models three designs side by side before recommending one.

Rehabilitation and Return-to-Work Services

The biggest structural advantage of group income protection over personal income protection is the rehabilitation and return-to-work piece. Modern UK policies include, as standard, services that typically sit outside a personal IP policy:

Occupational health assessments from day one of absence.
Vocational rehabilitation case managers who coordinate GP, specialist and employer input.
Phased-return planning, including adjusted duties, reduced hours and workplace accommodations.
Cognitive behavioural therapy and counselling sessions.
Physiotherapy referrals.
Funding for workplace adjustments (specialist chairs, screen readers, mobility aids).

For the employer, this is the differentiator. Personal income protection pays a claim. Group income protection tries to get the employee back to productive work, with the insurer covering the cost of the intervention. The ABI’s industry data consistently shows group income protection claims return to work faster than personal claims with the same underlying medical picture.

Mental Health Support as the 2026 Norm

Mental health is now the single largest driver of long-term absence in the UK. Every major UK group income protection insurer in 2026 includes mental health support as a standard part of the scheme, not a paid-for add-on.

Typical inclusions:

Employee Assistance Programmes (EAP) with 24/7 counselling
Digital CBT platforms
Mental health first aider training for the employer
Stress risk assessments
Line manager training on recognising and supporting mental health absence

These services are available to every employee in the group from day one, regardless of whether they ever go on to make an income protection claim. That is the genuine value exchange for an employer. You pay premiums monthly, your whole workforce gets access to mental health tooling, and if the worst happens the insurer also pays the income replacement.

Tax Treatment

Always verify tax treatment with your accountant. What follows is general UK guidance as at 2026-04-19.

Premiums paid by the employer are typically deductible against corporation tax as an allowable business expense, provided the scheme is set up for a genuine business purpose (staff retention, employee welfare) and meets HMRC’s “wholly and exclusively” test.

Premiums are generally not treated as a benefit in kind for the employee under current HMRC rules, because the employee does not own the policy and does not receive the benefit directly. The insurer pays the employer, who then pays the employee through PAYE.

Claim payouts reaching the employee are taxed as income through PAYE in the usual way, because the payment is routed through the employer’s payroll. The employee pays income tax and National Insurance on the benefit as if it were salary.

Worked example

Acme Ltd runs a 10-employee scheme. Annual premium: £4,200. Scheme design: 75% of salary, 26-week deferred, benefit to state pension age.

Corporation tax relief on premium: £4,200 at 25% = £1,050 saved.
Net cost to employer: £3,150 per year, or £315 per employee per year.

Employee Sarah, on £42,000 salary, is signed off with anxiety and depression. After the 26-week deferred period, the insurer pays benefit equal to 75% of her salary (£31,500 per year) to Acme Ltd. Acme runs this through payroll. Sarah pays income tax and NI on the £31,500 at her marginal rate and takes home the net figure monthly, as she did when working.

Claim continues until Sarah returns to work (supported by the insurer’s rehabilitation team) or until state pension age, whichever comes first.

Group IP vs Personal IP

Employees often ask why they need a personal income protection policy if their employer has a group scheme. It depends on the gap between the two.

Feature	Group IP	Personal IP
Who owns the policy	Employer	Employee
Who pays the premium	Employer	Employee
Benefit ceiling	Up to 80% of salary	Typically 50 to 60% of gross income
Underwriting	Often none or minimal for standard scheme	Full individual medical underwriting
Portability if you leave employer	No. Cover ends.	Yes. Policy travels with you
Rehabilitation services	Yes. Standard.	Rarely included
Pre-existing conditions	Normally covered within scheme terms	Usually excluded or loaded
Claim taxed as income	Yes, via PAYE	No. Tax-free

The honest answer for most employees: if you have strong group cover you may not need a personal policy. If you change jobs often, are a contractor, or your employer does not offer group cover, a personal policy is essential. Knox advises individuals on their personal position separately on the main income protection page and the self-employed income protection pages.

Group IP vs Executive IP

For a limited company director asking whether to use group income protection or executive income protection, the answer depends on how many employees they want to cover and how they are paid.

Scenario	Group IP	Executive IP
Covers	All or a defined group of employees	Named individual employee, usually a director
Typical audience	Employers with 3+ employees	Sole directors or very small director teams
Cover base	Salary (and optionally bonus / pension)	Salary + dividends + P11D (up to 80%)
Premium paid by	Business	Business
Tax on premium for employee	Not a BIK, typically	Not a BIK, typically
Claim taxed	Yes, via PAYE	Yes, via PAYE to director
Underwriting	Scheme-level, often minimal	Full individual underwriting
Minimum scheme size	Typically 3 to 5 lives	1 life
Cross-sell to	Employer benefit programmes	Limited company director mortgage clients

If you are a single director with no other staff, executive income protection is almost always the right answer. If you employ 3 or more people, a group scheme gives you broader cover at a more efficient per-head cost. Knox advises directors on both and cross-links to the executive income protection page for the full comparison.

Typical Costs for Employers

Group income protection is priced on the covered payroll. Insurers apply a rate per £100 of benefit, adjusted for industry, demographics, and scheme design.

Indicative annual premium benchmarks as at 2026-04-19 for a 10-life scheme with standard design (75% benefit, 26-week deferred, to state pension age, NI continuance included):

Industry risk band	Example sectors	£ per employee per year
Low	Professional services, IT, finance, admin	£250 to £450
Medium	Retail, hospitality, education	£400 to £700
Higher	Construction, manufacturing, logistics	£600 to £1,100
Specialist	Heavy industry, offshore, healthcare front line	£1,000 to £1,800+

Smaller schemes (3 to 5 lives) typically price at the higher end of each band. Schemes above 50 lives move toward bulk pricing and experience-rated reviews. Free-cover limits (the amount of benefit underwritten without individual medical questions) are usually generous for scheme sizes above 10 lives.

These are benchmarks, not quotes. Every scheme is priced individually. Knox runs tender quotes across the UK group risk market and presents the trade-offs before recommending a provider.

How to Set Up a Group Income Protection Scheme

Three setup routes depending on the employer’s size and benefit strategy.

Single-employer scheme

Standalone policy covering a defined group of your own employees. The employer is the policyholder. Suits businesses with 3+ employees who want bespoke design and a direct relationship with an insurer. Most schemes Knox places sit here.

Multi-employer or master trust scheme

A pooled scheme where several smaller employers sit inside a single trust arrangement, usually arranged through a broker or benefits provider. Brings smaller headcounts into better pricing bands. Suits employers with 2 to 10 staff who want group income protection cover without full scheme admin.

Flex benefits scheme

The employer gives employees a budget to select their own benefits, with group income protection offered as one of the choices. Premium is paid from the employee’s flex allowance rather than separately by the employer. Suits larger employers (typically 50+) already running a flex platform.

Group IP lump sum settlement

Some schemes offer an option, at claim, to commute an ongoing monthly benefit into a one-off lump sum settlement. “Group income protection lump sum settlement” is a term employees often search for. In practice, lump sums are negotiated case-by-case between the insurer, the employer and the employee, usually when medical prognosis is clear and both sides prefer closure to an open-ended claim. It is not a standard feature you can assume; it is a negotiation tool at claim stage.

Claim Process and Typical Timelines

A typical UK group income protection claim runs as follows.

Employee is signed off by a GP and the absence begins.
At around week 4 to 6 of absence, the employer notifies the insurer of a potential claim.
The insurer opens a claim file and often deploys rehabilitation support straight away, well before the deferred period ends.
Medical evidence (GP reports, specialist reports, occupational health assessments) is collected across the deferred period.
The insurer makes a claim decision shortly before the deferred period expires.
If accepted, the first benefit payment is made to the employer shortly after the deferred period ends. The employer pays the employee through payroll.
Monthly benefit continues, with periodic medical reviews, until the employee returns to work or the benefit period ends.
If declined, the insurer explains why. Common reasons: the condition is not expected to prevent work long-term, the employee is not following a reasonable treatment plan, or the incapacity definition in the policy is not met.

Claims-paid rates on UK group income protection are consistently high. The ABI industry figure runs above 80% of claims paid each year, and well-managed cases with early rehabilitation engagement run higher still. Knox advises the employer on claim submission and, when needed, on declined-claim escalation.

The Wider Group Protection Family

Group income protection is one of four products sitting inside the group protection pillar. Most employers build a benefits package using a combination.

Group life insurance (death in service). Pays a tax-free lump sum (typically 2x, 3x or 4x salary) to an employee’s nominated beneficiaries if they die while employed. Highest-volume group protection product, covered on the death in service benefit page.

Group critical illness cover. Pays a lump sum to an employee if they are diagnosed with one of the insured conditions (cancer, heart attack, stroke and others). Less common than group life and group IP but increasingly offered as a voluntary benefit.

Group private medical insurance. Covers employees for private healthcare, typically covering diagnostics, consultations, surgery, cancer care and mental health. Pays the provider directly rather than the employee. The most expensive of the four but the most visible benefit for retention.

A typical SME benefits stack: group life at 4x salary, group income protection at 75% salary to state pension age, group PMI for senior staff, group critical illness as a voluntary top-up.

How Knox Advises Small Employers on Group Protection

Knox Mortgages is a UK FCA-regulated mortgage and protection adviser. We place group protection schemes for small and mid-size limited companies, with a specific tilt toward clients who already use Knox for their director or business mortgage needs.

The process for a new group protection scheme:

Scope the headcount, salaries, industry and existing benefits.
Map the priority order: income protection, death in service, critical illness, PMI.
Model two or three scheme designs at different cost and cover levels.
Tender across the UK group risk market.
Present a recommendation with trade-offs written out clearly.
Handle scheme setup, policy documentation, employee communications, and ongoing administration.

Knox does not charge a fee for group protection advice. Commission is disclosed on request. Schemes are reviewed annually and at any trigger event (acquisition, headcount change, benefit redesign).

Related Knox pages for limited company directors:

Executive income protection for single-director businesses: /executive-income-protection/
Relevant life insurance for director life cover: /relevant-life-insurance/
Key person insurance for the “the business is the person” scenario: /key-person-insurance/
Shareholder protection for 2+ shareholder limited companies: /shareholder-protection-insurance/
Limited company buy-to-let mortgages: /limited-company-buy-to-let-mortgage/

Frequently Asked Questions

How does group income protection work in the UK?

The employer buys a policy covering a group of employees. Premiums are paid by the business. If an employee is off work due to illness or injury for longer than the deferred period (usually 13, 26 or 52 weeks), the insurer pays a percentage of salary (usually 60 to 80%) to the employer, who pays it to the employee through PAYE for as long as the incapacity continues, up to the agreed benefit period.

Is group income protection taxable?

The benefit is taxed as income when it reaches the employee because it is paid through PAYE. Premiums paid by the employer are typically treated as an allowable business expense for corporation tax and generally not treated as a benefit in kind for the employee. Always verify with your accountant; HMRC rules can change.

What is a group income protection lump sum settlement?

At claim stage, the insurer, employer and employee may agree to commute an ongoing monthly benefit into a one-off lump sum. This is a negotiated outcome, not a standard feature of every policy. It typically happens when medical prognosis is clear and both sides prefer certainty to an open-ended claim.

Group income protection vs critical illness cover, which is better?

They solve different problems. Group income protection replaces income while an employee is off work long-term due to any qualifying illness or injury. Group critical illness cover pays a one-off lump sum if an employee is diagnosed with a specifically listed illness (cancer, heart attack, stroke and others). Most employers who can afford both offer income protection first and critical illness as a voluntary top-up.

What is the minimum headcount for a group income protection scheme?

UK insurers typically write group income protection schemes from 3 lives upward, although some will quote from 2. Below that, executive income protection on a named director is usually the right answer.

Can directors be included in a group income protection scheme?

Yes. Directors on a PAYE contract are usually eligible. For a single-director business, executive income protection is often more cost-effective because it can cover salary plus dividends up to 80% of income. Once the business has 3+ PAYE employees, a group scheme becomes the default.

How long does it take to set up a group income protection scheme?

From initial quote to active scheme, 3 to 6 weeks is typical for a standard SME. Faster if there is no individual medical underwriting required under the free-cover limit. Slower if the scheme size pushes above the free-cover limit and several employees need individual underwriting.

How much does group income protection cost per employee?

Indicative benchmarks: £250 to £450 per employee per year for low-risk professional services, £400 to £700 for medium-risk sectors, £600 to £1,100 for higher-risk manual trades, and £1,000+ for specialist industries. Actual cost depends on scheme design, demographics, and underwriting.

What happens if an employee leaves during a claim?

Group income protection cover ends when employment ends. If a claim is already in payment at the point the employee leaves the business, many policies allow the claim to continue to be paid to the employer for an agreed period under “extension of cover” or “claim continuation” terms, though this varies by insurer. Employees who want cover that travels with them across jobs need a personal income protection policy.

Is group income protection the same as group protection insurance?

No. “Group protection insurance” is the umbrella term for the four products in the group protection family: group income protection, group life insurance (death in service), group critical illness cover, and group private medical insurance. Group income protection is one of the four.

Speak to a Protection Adviser

Knox Mortgages advises UK limited companies on group income protection and the wider group protection family. Whole of UK group risk market. Scheme setup, annual review, and claim support included. No fee for advice.

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