Why income protection is the most desired employee benefit

Last year, we asked more than one thousand SME employees about the benefits they most desired. The answer? Income protection insurance.

24% of respondents said they wanted income protection, yet only 4% were receiving it – proving that you what you want is not necessarily what you get.

But why is income protection so highly sought after? Read on to discover the answer.


Recap: What is income protection?

Income protection is an insurance policy which compensates employees if they are unable to work due to unforeseen circumstances. These conditions can include serious injury or prolonged illness.

In some cases, the insurance might cover short term periods of only a year or two, but full income protection payments will generally continue until the client returns to work, until their retirement, or even until they pass away.

How much the employee receives depends on the policy, but they are calculated as a percentage of an employee’s existing salary. Income protection does not apply if an employee is dismissed by the company or made redundant.

There are two main ways of taking out income protection insurance:

  1. Group income protection: offered to multiple employees in a business
  2. Individual income protection: taken out by – or for – an individual

Here are 4 reasons why income protection has become so popular…


Reason #1: Income protection offers financial security

 The basic idea behind income protection insurance is that it provides financial security in the event of a serious health problem. As well as supporting the individual concerned, it can also provide protection to their family.

Income protection can offer payments for hospitalisation and a no-deferral period, so employees don’t have to wait before claiming again. Some policies can also offer inclusive life insurance for periods of a year or two, providing employees with even more cover.


Reason #2: Income protection reassures staff during an age of uncertainty

 Our original survey was carried out in the midst of the pandemic. There’s no doubt that having a financial safety net at a time like this is particularly attractive to current or prospective staff.

Let’s be honest, the uncertainty that surrounds us will go on for some time yet. While societal restrictions are gradually being loosened, Covid-19 remains. While we’re not experts on the Government’s pandemic response, there is a strong likelihood that future lockdowns and/or other restrictive measures will return.

At a time like this, a health-related financial support policy will remain attractive for the foreseeable future.


Reason #3: Income protection provides a wider scope of support than life or critical illness

Income protection is not the only financial support package available on the market which provides for health concerns. Life insurance and critical illness cover are also worth considering.

So, how do they compare?

Life insurance as the name suggests, is about providing financial support for your loved-ones in the event that the very worst case happens. Meanwhile, critical illness cover provides you with a lump sum payment if you’re diagnosed with a serious illness or disability that will impact your life.

Perhaps the reason that many people find income protection more attractive is because it covers for a wider range of health problems. For example, an income protection policy could include cover for critical illness too.

As with all insurance policies, the devil is in the detail. But it’s true that income protection offers cover for a wider scope of health-related problems.

If you need one-to-one help finding the right insurance policy, contact our team of friendly advisors. We’re an independent broker offering impartial insurance advice for small business owners.


Reason #4: Income protection insurance is tax-free

Typically, an income protection policy will offer half or two thirds of an employee’s salary in the event of serious injury or illness. However, the employee will also be able to claim certain state benefits.

Another key financial benefit is that it’s tax-free. The money is all yours!



How can you purchase income protection insurance?

That partly depends on what you want it for. Are you a business owner looking to get cover for just one person? Or are you looking to cover a number of people? Either way, it’s a complex marketplace with a vast array of products with different price points and features.

The first stage is to understand what you want. If you’re providing insurance for a team, then you need to consider the demographics of your workforce and their needs and wants. The simple truth is that insurance is only worthwhile if it’s what your team values.

Clearly, this is easier to manage for a one-person policy where you just need to think through your own requirements.

Before approaching an insurance company you need to establish firm answers to these questions:


  1. How much are you willing to invest?
  2. What do your employees want?
  3. What will most benefit the business?
  4. What level of cover will you need to make it worthwhile?


By gaining greater clarity, you’re less likely to fall prey to the marketing spiel of the insurance advisor and buy into a product which may fail to meet your requirements.

Hooray Health & Protection is dedicated to small business health insurance. We help startups and small businesses get the insurance they need at the most competitive price. But we don’t give you what WE want to give you. Rather, we let you take the lead – we simply guide you through the process and give impartial advice on-route.

If you’re looking to get group income protection or an individual policy for your business, give us a call on 01273 222805 or use the chat box. We’ll be only too happy to unravel the confusion and provide clarity.

About Lisa Baker, Editor 2359 Articles
Lisa Baker is the Editor of Always Finance, and writes about Business, Finance Technology and Healthcare. Lisa is also the owner of Need to See IT Publishing.