An insider's guide to disability income protection

Amongst financial advisers, the benefit is typically seen as one of the most important within any individual financial plan such is the impact on living standards in the event of a loss of income. Research by consultants Willis Towers Watson found that nearly one-third of employees ranked income protection insurance within their top three employee benefits.

It is an important, yet unglamorous benefit but amongst UK employers it is not that commonly provided. According to data from Swiss Re, a reinsurer, just over 17,000 employers provide the benefit to their staff, which is only 1.25% of all UK employers. That said, the benefit is much more common within the programmes of larger organisations.

This is largely due to the value perceived, balanced with cost and complexity barriers. Traditional benefits which replace an employee’s salary right up until they retire are naturally quite expensive and for new buyers the complexity of the product can put them off too.

As a high severity, low frequency insurance the value of the product is only realised when an employee is absent for a long period, which does not help justify the cost to those fortunate enough to have not experienced such an absence.

The industry has been working hard to address these weaknesses and there’s been a lot of change as a result. For existing buyers who haven’t re-evaluated their policy in a while, or for new ones interested here’s some food for thought.

5 key considerations for employers

1) Your insurance product should fit within your wider absence policy

Rather than a standalone employee benefit, the insurance should complement your existing absence management and occupational health strategies. Insurers have an interest in acting early to help an employee, as data shows early intervention shortens claim durations and therefore most offer case management support to employees after just a few weeks of absence. Earlier involvement in the process, means collaboration will be needed with existing processes or an outsourced solution sourced from the insurer.

2) The earlier insurers know, the better. Your process should be set up to tell them

A second consideration is an operational one. Absence processes must be robust enough so that all of those involved in the reporting line know when and how to report absences to their insurer. This may require processes to be altered and training to be conducted, but a break in the process can cause delays which is likely to be detrimental to the aim of a speedy and successful return to work.

3) Make sure you utilise additional benefits such as EAPs provided with your policy

Many policies provide added value benefits, yet these can often be forgotten and not fully utilised. In some cases employers may already be paying for a comparable service not realising that a similar service is already included within their policy free of charge.

4) Consider all cover options available and match these to your budget

The deferred period (time the employee has to be absent before payment will commence), escalation rate (how much the benefit changes each year) and the payment period (how long the insurance cover will continue paying the employee) all have a huge impact on the premium.

While traditional benefit designs pay through to retirement age, many policies are now only paying for a fixed term period of three, four or five years. This can reduce the cost significantly, yet employers will still benefit from the additional benefits provided by the insurer including the important case management support. For employees, some cover is surely better than none?

5) Details matter, so make sure you get advice from a specialist

While there are many options available to employers, the details matter, so getting advice is a must. Including a state benefit offset for example, can reduce cost but it may impact on the cover provided to employees in some circumstances. Getting design details like this right, as well as successfully integrating the policy into a wider absence process, has a big impact on cost and effectiveness. A specialist can help with both.

Disability income protection is not just a generous employee benefit for the privileged few who can afford to provide it. Non-insurance aspects of the product can provide great value to the business too and by tweaking the insurance options provided with the help of a specialist, a wide variety of budgets can be accommodated.

Group disability income protection has changed and as a result its purpose and value to the employer has too. Now is the time to re-evaluate.

This article was provided by Ellipse.