What Is Group Life Assurance? How Much Does It Cost?

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16-11-2020

Group Life Insurance (also known as Death in Service Insurance) pays a tax-free lump sum to the family or nominated beneficiary in the event of an employee’s death. The payout provides financial support during such difficult times, helping loved ones to pay off an outstanding mortgage, cover funeral costs or help with other everyday financial commitments.

  • Covers a multiple of an employee’s income, generally between 2 and 4 times (although up to 15 times earnings is typically possible).
  • Payouts are tax-efficient due to the trust set up with the policy, which avoids inheritance tax on the benefit
  • Offers your employees peace of mind, knowing their loved ones have a lump sum benefit or dependant pension to support them should they die.

Do We Need Employee Life Insurance?

Just 36.7% of people have some kind of Life Insurance, making company paid cover a valuable benefit for the majority of uninsured Brits.

Employees say Group Life Insurance is in the top five benefits they want their company to offer. It’s also one of the simplest and cheapest policies on the market.

Guide to Group Life Assurance

An impressive employee benefits package can:

  • Attract and retain the best workers
  • Improve employee engagement
  • Reduce stress and related absenteeism.

The Benefits For Employees

Cost is a big barrier to the uptake of individual Life Insurance. Offering group cover therefore not only shows your employees you care but also takes a weight off their shoulders. They know their loved ones have financial protection without them paying a penny.

Moreover, unless company Life Insurance exceeds the free cover limit, staff are accepted without medical underwriting. This means pre-existing conditions are typically covered for most people, which may not be the case with a personal policy.

Can We Get Company Life Insurance?

To set-up a company life insurance policy you will need at least 3 full time employees.

In addition these employees must meet some of the scheme’s common minimum requirements. For instance:

  • Being within the minimum and maximum entry ages of the policy
  • Having a UK working contract and being eligible to work in the UK
  • Being an active employee at the company providing the insurance scheme.

Some employers add additional terms before including employees in policies. For example, this might include working for the company for a set period or being above a certain pay grade / status within the company.

Relevant Life Insurance For A Micro Business

For businesses without enough employees for Group Life Insurance, an alternative might therefore be Relevant Life Insurance, which is popular with contractors.

Relevant life cover is an employer-paid Life Insurance policy covering a single employee rather than a group. It does, however, have similar tax efficiencies to a group scheme given it is considered a business expense and claims are paid tax free.

How Much Does Group Life Assurance Cost?

The cost of Group Life Insurance will depend on the extent of cover you want to provide and the demographics of your employees. Details that impact premiums include:

  • Level of cover (i.e. multiple of salary)
  • Employees’ ages
  • The size of the group
  • Your industry and occupation
  • Where staff are usually based for work.

Check out the table below for a rough idea on the cost of cover, which we’ve based on the premiums of two recent clients.

Software Company

Health Service Company

Location

London

Barnsley

Employees

10

200

Cease Age

State Retirement Age

State Retirement Age

Level of Cover

4 x Annual Salary

1 x Annual Salary

Cost
Per Employee

£29.35 per month

£2.52 per month

Premiums correct as of July 2020
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How Is It Taxed By HMRC?

As HMRC generally considers group life insurance a business expense, premiums are typically eligible for corporation tax relief.

Also, the trust you set up with the cover means there’s no tax on the payout, either.

Is Group Life Insurance A P11D / Benefit In Kind?

No, it is not usually a P11D / Benefit in Kind. Employees don’t therefore typically need to pay extra income tax.

Do We Need A Trust?

Yes, a trust is essential. It receives the benefit if an employee dies. A scheme can’t start without a trust, which keeps the payout separate from the business. Most importantly, the trust also sidesteps inheritance taxon the payout for the employee’s family.

There are two ways to set up the trust: the DIY approach or using your insurer’s ‘master trust‘. Read more on these two approaches here.

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Common Corporate Life Insurance Questions

  • What's The Difference Between Group And Personal Life Insurance?

    The main difference is that with a group scheme the employer pays the premium which puts them in control of the level and length of cover they choose to provide.

    Given these limitations it is important to still have suitable personal cover to protect a mortgage or other debts as you cannot assume you will always have group life insurance.

  • Will It Cover Employees Working Abroad?

    Yes, employees are typically covered for both business trips overseas as well as holidays.

    However, if you have employees who regularly travel overseas for work to any areas deemed as high risk it could impact the cost of your group life insurance and the insurer that’s best for your business. High risk areas might include, for example, areas with active conflicts, epidemics, terrorist threats or other dangers.

  • Does Group Life Cover Pre-existing Medical Conditions ?

    In most cases, yes.

    Unless your level of cover exceeds the free cover limit you will be automatically accepted onto the scheme without requiring any medical underwriting and pre-existing conditions being covered.

  • What Is The Free Cover Limit?

    The free cover limit is essentially the maximum amount of cover each individual policy member can have before they’ll need medical underwriting (which involves answering medical questions).

    It’s usually set quite high, so only employees with the largest benefit need medical underwriting. In most cases it’s rare to exceed the FCL.

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Who Are the Best UK Group Life Insurance Providers?

We’re independent and have access to every UK insurer. We do all the heavy lifting, comparing quotes from:

  • AIG
  • Aviva
  • Canada Life
  • Legal & General
  • MetLife
  • Unum.

Once we’ve got quotes, we’ll send you a personalised report summarising our research. This will lay out which of the top UK insurers we think is best for you and your staff.

The Best Additional Benefits

In addition to the death benefit, there are a number of services insurers usually offer free with a policy:

Where Does It Fit With Other Employee Benefits?

Company paid Life Insurance tends to be one of the first benefits a company introduces. This is because it’s relatively cheap but employees really value it.

It also provides a solid base to introduce other benefits, for instance:

  • Group Critical Illness Cover
    Pays a tax-free lump sum if an employee develops a critical illness, such as cancer, heart attack or stroke.
  • Group Income Protection
    Works with your company’s sick pay policy to offer staff a monthly income if they’re medically unfit to work.
  • Business Health Insurance
    Pays for private healthcare, offering your staff the best treatment exactly when they need it, potentially getting them back to work faster.

Profile Pensions’ Employee Life Insurance Story

Here’s why Profile Pensions chose Drewberry to help with their cover…

Setting Up Company Life Insurance - Client Story

“Getting Corporate Life Insurance was a no-brainer. Our employees get comfort from knowing it’s there and we’re proud to provide that. We work hard to provide good benefits to our employees and show a commitment to our employees, so introducing an employee benefit was really a logical step.”
Michelle Donlin
HR and Office Manager at Profile Pensions

Compare Group Life Insurance Quotes & Get Expert Advice

Setting up a competitive benefits package can be a bit of a headache. We do the heavy lifting for businesses across the UK so they can focus on what they’re best at: delivering their own proposition.

We’re here to help you set-up and administer your employee benefits in the most appropriate way while achieving the best possible premiums.

Why Speak to Us?

We started Drewberry™ because we were tired of being treated like a number.

We all deserve a first class service when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

If you need help setting up group life insurance give us a call on 02084327333 or email help@drewberry.co.uk to speak to an expert adviser.

The staff have been very knowledgeable and I have enjoyed working with Nadeem on setting up our plan.

Kim S
22/06/2020
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