Income protection remains one of the most valued employee benefits an organisation can offer, but it can be expensive. That’s because traditional income protection policies are designed to pay out until retirement age, potentially creating a significant long-term financial liability for insurers.
To put that into context, if an employee becomes unable to work in their 40s, the insurer could be paying their salary for 20+ years, often with built-in escalation and pension contributions. With a noticeable rise in claims on income protection policies in recent years, the cost of this type of cover has continued to increase.
Limited payment terms
One increasingly popular solution, particularly for new-to-market schemes, is to implement limited payment terms. Rather than covering an employee’s income all the way to retirement, these policies provide a fixed benefit period, typically up to five years. This approach significantly reduces the cost by around 50% on average, while still offering valuable support to employees during difficult times.
Why five years makes practical sense
Five years makes practical sense for a number of different reasons, including:
- Most claims don’t last that long – The majority of income protection claims are resolved well before the five-year mark.
- Offers real support during transition – For those few cases that do extend beyond five years, this benefit provides a substantial financial buffer and gives employees and their families time to adjust, explore alternative support, or plan for the future.
- Reflects modern employment patterns – Today’s employees rarely stay with the same company until retirement. Offering cover up to pension age may no longer reflect the reality of workplace mobility.
- Reduces long-term obligations – Do employers really want to maintain someone as a long-term absentee on the payroll for two decades? Even with income protection in place, there are still ongoing HR, legal, and pension responsibilities to consider.
Is limited-term income protection right for your business?
Every employer wants to do the right thing for their team, but in a world where benefit costs are rising and budgets are under pressure, it’s important to find solutions that are both sustainable and supportive. Limited-term income protection offers a practical way to provide financial security for employees facing long-term illness or injury, without locking your business into decades of financial and administrative commitment.
By limiting the payment period to five years, you’re still offering a highly valuable benefit that gives employees peace of mind and genuine support when they need it most. At the same time, you’re keeping your benefit strategy flexible and cost-effective, ready to adapt as your business evolves.
If you’re reviewing your existing income protection policy or considering introducing one for the first time, now is a great time to explore how limited-term options could work for you
At Bespoke Benefits, we specialise in helping businesses create tailored employee benefit schemes that strike the right balance between protection and practicality. Get in touch with our friendly team today for a no-obligation chat about how we can support your business and your people.
This article is for informational purposes only and does not constitute financial, medical, or legal advice. The information provided reflects general trends and insights as of the date of publication and may not apply to all circumstances. For income protection insurance or employee benefits, we recommend consulting with a qualified professional or insurance advisor.
