Group Income Protection: the third way
Oval’s Nick Allen reveals there’s a real alternative to the ‘keep it or bin it’ approach …

Did you know?
The CBI estimates that absence through sickness cost UK business £16.7 billion in 2009 – or 172 million working days at an average of 6.7 sick days per employee1.

Group Income Protection (GIP) has suffered as a benefit during the recession with many employers identifying it as a potential cost saving. Many have perceived the choice as simply being a case of keep it or get shot of it. But there is an overlooked alternative that reduces your GIP overhead while preserving the benefit – and today accounts for 10%2 of the income protection market. It’s called a Limited Term Income Protection policy. That’s a real mouthful so let’s call it LTIP for short.

LTIP policies are a lower-cost alternative to the traditional income protection products that pay to retirement if one of your employees is unable to work. They do this by offering a set payment cover period – for example two to five years. Think about it: LTIP premiums average 40-45% less3 for a policy that pays for five years and 65% less4 for one that pays for two years. That’s a compelling reduction in premium that actively saves you money while still maintaining a valuable portion of the benefit. Plus, you can increase cover with a lump-sum payment of up to five times the annualised benefit that becomes due at the end of the cover period.

Illustrating the point

An organisation with 89 staff: the fully insured GIP scheme cost 1.2% of payroll. An LTIP alternative was 0.26% of payroll5.

A marked trend with GIP today is that employers are seeking a heads-up on absence through illness - then provide early assistance to help people get back to work or support those unable to. Combine this with a sharp reduction in recent decades of the average length of time an employee is likely to stay with a firm and the limited term option - and the greater flexibility it brings - starts to make real sense.

LTIP also give employers more flexibility when it comes to new employees.

• As with final salary pension schemes, employers can close their existing GIP scheme to new recruits but offer them LTIP benefit instead.
• With employee benefits forming an intrinsic part of attracting quality new people, introducing LTIP in a targeted manner goes a long way to helping employers re-balance the cost of benefit without compromising them.

Planned changes to the retirement age makes LTIP attractive too as employers can cap both cost and liability across the board without falling foul of age discrimination legislation.

So if you’re wrestling with how you configure group income protection, have a think about the limited term version. You may find it makes perfect sense – and we have all the expertise you need to make it work for your business.

1 CBI Absence and Labour Turnover Survey, 2010
2 Employee Benefits Magazine, Jennifer Patterson, July 2010
3 Employee Benefits Magazine, Jennifer Patterson, July 2010
4 Employee Benefits Magazine, Jennifer Patterson, July 2010
5 Paul Avis of Canada Life/Employee Benefits Magazine, Jennifer Patterson, July 2010

Like to find out more about how Oval can make GIP more flexible for your business and your people?

Contact Nick Allen on 07584 171067or email at: nick.allen@theovalgroup.com.