Group Life Insurance

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11-05-2021

Group Life Insurance (also known as Death in Service Insurance) is a key employee benefit that provides employees with a level of company paid life cover.

It 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 a difficult time, 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 lump sum payment.
  • Offers your employees peace of mind, knowing their family will have a lump sum benefit or dependant pension to support them should they die.

Why Is Group Life Insurance Important?

Just 36.7% of people have some kind of Life Cover, 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 insurance products on the market.

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 term assurance. 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 the level of benefit 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.

For many employers they want to provide their employees with peace of mind knowing their families would be financially secure should they die.

One of our clients Profile Pensions saw it as a no brainer, read the full story of why they set-up life cover for their employees here →

Are You Eligible For Group 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.

Micro Businesses Should Consider Relevant Life Insurance

For businesses without enough employees for a Group Life policy, 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 Employee Life Insurance 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 will affect the cost of a policy include:

  • Employees’ salaries and the level of cover
    We need this to work out how much you want to insure each individual for and therefore price the policy accordingly.
  • Your industry and occupation 
    There are some occupations (e.g. manual work, working at heights or underwater) that are riskier than others, such as desk-based clerical jobs.
  • Employees’ ages 
    Older employees are more likely to claim on the policy.
  • The size of the group
    Although there are more lives to insure the bigger the group, insurers often offer a discount for larger group sizes.
  • Where employees are usually based for work
  • If employees are actively at work currently
    Those off on long-term sickness absence at the policy’s inception are unlikely to be covered.

It may seem like a lot of information to obtain accurate quotes for Group Life Insurance, but we really do need it because there are many different factors which affect the cost of policies.

However, to preserve anonymity during the quote stage you don’t have to give names.

Average Cost Of Group Life Insurance in 2021

Below is a table of example clients who both provide employee Life Insurance for their employees. The first is a small software development firm while the other is a larger hospital service company.

Given the difference in employee demographic and level of cover you can see how different the cost can be per employee.

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 lump sum 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 tax on the payout for the employee’s family.

There are two ways to set up a Group Life Insurance trust: you can do this yourself as the employer or use what’s known as the insurer’s ‘master trust’.

Employer Established Trusts

  • Step 1 / Execute a trust deed
    Insurers typically provide you with model trust deeds to use, but you may wish to refer this trust to your legal advisers. The policy cannot start prior to the execution of the trust deed.
  • Step 2 / Register the scheme administrator with HMRC
    The trust deed appoints a scheme administrator who will need to register as the administrator with HMRC. This can take a few days if the chosen scheme administrator has never previously registered as such with HMRC.
  • Step 3 / Register the scheme
    Once the administrator is appointed, it’s time to register the scheme with HMRC. This will provide you with a Pension Scheme Tax Reference Number, which will need to be attached to the executed trust to start the policy.

Master Trusts

Most insurers already have so-called ‘master trusts’ in place. These are already set up for you to use and means there’s no need for you to set up a trust of your own.

The administration of the trust, including reporting to HMRC, is taken care of by independent scheme trustees.

As this is a less bespoke option, it’s recommended you seek the appropriate legal advice before participating in a master trust to ensure it’s right for your company.

Read more on these two approaches here →

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Common Group 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.

  • Does Employee Life Insurance 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.

  • Are There Any Standard Exclusions?

  • 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.

  • 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.

  • Can You Cash In Company Life Insurance?

    No, a Group Life Insurance policy has no real ‘cash’ value at any time. You cannot borrow from it or cash it in.

    The only time a policy has a value is upon an individual’s death, at which point the payout goes into a trust to be paid out to the deceased’s loved ones avoiding inheritance tax.

  • What Happens When An Employee Leaves The Company?

    If you leave your job, are made redundant or retire, your company Life Insurance ceases. You may be able to continue coverage on an individual basis depending on certain factors, but this will be entirely at the discretion of the insurer.

    For this reason, it shouldn’t be relied on as a mainstay of your Life Insurance provision. You may not always have company-paid Life Insurance and so many of our clients opt for a personal policy to run alongside their group scheme.

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Who Are the Best UK Group Life Insurance Providers In 2021?

We’re independent insurance advisers and have access to every UK insurer.

It is difficult to say whether there is a standout provider as it really depends on your business. Some insurers like underwriting employees that are in low risk occupations while others are better at catering to small businesses.

For this reason we always compare employee life insurance quotes from all the leading providers when undertaking our research for you. The insurers we tend to work with most include:

  • 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 & Support Services

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

When we obtain pricing from all of the leading insurers we clearly set-out the additional benefits and support services that come with each insurers products both those that are free and that come at an additional cost.

Nadeem Farid, Head of Employee Benefits at Drewberry

Since the pandemic many of our clients are seeing huge value in providing the video GP service and employee assistance programme.

It helps them show their employees they are there to support them and provides them with signposting to get help where needed.

Nadeem Farid
Head of Employee Benefits

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.

Compare Company 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 a group life policy get in touch on 02084327333 or email help@drewberry.co.uk to speak to an expert adviser.

Very good service from Rauri – he has been very helpful and thorough.

Kathryn Wright
16/05/2021
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