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How to Set Up Group Life Insurance

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Group Life Insurance – also known as Death in Service Cover or Workplace Life Insurance – is employer-provided Life Insurance for the benefit of the employees.

It sees the company pay Life Insurance premiums on behalf of its workers. In return, the employees receive a Death in Service benefit worth a multiple of their salary to be paid to their family if they were to pass away.

The death can occur anytime, anywhere – it doesn’t have to be in connection with the worker’s job.

Group Life Insurance is often one of the first employee benefits introduced because:

  • It’s relatively cheap – the cheapest among all employee benefits insurances
  • It’s simple to understand
  • It’s highly-valued by workers and their families.

Can We Get Group Life Insurance?

The main barrier to entry for a Group Life Cover benefit is a minimum number of employees. Most providers require at least five employees for you to get cover, but some will accept as few as two employees.

Other stipulations include:

  • Staff to be covered must be within the minimum and maximum entry ages of the policy.
  • All staff must be eligible to work in the UK and have a UK working contract (although they can work abroad, providing their contract is UK-based).
  • Staff must be an active employee at the company providing the insurance scheme.

In addition to the minimum terms imposed by the provider, some companies choose to add their own conditions. These include putting in place a minimum time period an employee must spend at the company before being granted cover, or the cover only being provided to those with a stated seniority (e.g. managers only).

Why Do Employers Provide Life Insurance?

There are a number of reasons why it can be beneficial for employers to provide Life Insurance to their employees, not least because it’s an appreciated benefit and an excellent way to make workers feel valued, attract new workers and retain existing ones.

It also provides them with the comfort that their loved ones will have some degree of financial security should the worst happen.

Other reasons to offer Employee Life Assurance include:

  • Premiums are typically eligible for corporation tax relief for the employer; meanwhile, the benefit is not typically a benefit in kind for the employee, so no additional tax is due from the insured worker
  • A Workplace Life Insurance policy sees a trust set up automatically alongside the scheme, which receives the benefit before it is passed to the employee’s family. This avoids inheritance tax on the payout.
  • There’s no medical underwriting for the vast majority of employees, meaning hardly anyone needs to worry about the impact of pre-existing conditions on their cover
  • According to Drewberry’s 2018 Protection Survey, nearly half of people didn’t have Life Insurance because they perceived it as too expensive, which means having cover through work can be a weight off your employees’ minds.

How to Set Up Group Life Insurance

To set up Group Life Protection, you’ll need the following information about your employees:

  • Dates of birth / ages
  • Sex
  • Where they’re normally based for work
  • Occupation
  • Salary
  • Whether they travel frequently to any high-risk countries, such as those where there is internal conflict.

This is necessary for the insurer to price the risk of taking on your workforce. Although it seems like a lot of data, it really is required and we unfortunately can’t move on without it.

It is best to send this data to at least 3-4 UK insurers so you can get a reasonably good idea of what the market has to offer. In addition to the information you provide with regards to your employees you will also need to define the type of cover you wish them to provide quotes for which will include:

  • Level of cover – you need to define how much life insurance you want to provide for your employees, it is often set as a multiple of salary between 2 – 4 times but can vary by industry.
  • Length of cover – this is often aligned with State Pensionable Age.

When you have sent the providers the necessary information it can take a couple of weeks with some chasing to receive your quotes back.

When you have received your quotes you will need to ensure you are comparing like for like offerings by checking key policy factors such as:

  • Free cover limit –  this is the level of cover which an employee can receive before being medically underwritten, the larger the free cover limit the fewer employees who could potentially need additional medical underwriting before their cover is on risk
  • Unit rate guarantee period – this is the period of time the unit rate is guaranteed when pricing the policy, the unit rate is used in the calculation to price your policy, the longer the guarantee period the longer you can lock in your premium rate.
  • Frequency of payment – premiums can be paid monthly, quarterly or annually with annual payment some providers can offer up to a 5% discount.
  • Additional benefits offered – not all policies come equal with some insurers offering Employee Assistance Programmes and other benefit as part of their group life insurance. Taking these out separately can come at an additional cost so it is worth bearing in mind when weighing up your options.

Once you have analysed your quotes and come to a position where you have a provider you want to move forward with you will need to complete the relevant application forms and ensure there is a suitable trust set-up and in place for the policy.

Communication and Ongoing Administration

Once your policy is ready to go live the most important thing to do is communicate it to your staff. Whether this be through presentations, email or other means the value of the benefit is only realised when those who receive it are aware of its value.

With new joiners and leavers and ensuring you have the most competitive cover there is inevitably some ongoing administration you will have to deal with, some insurers provide a lot of support with this while others require you to do it all yourself. It is important you are aware of your requirements and keep your scheme data up to date with your payroll data.

Nadeem Farid Head of Employee Benefits at Drewberry

One of the main reasons firms choose to work with an independent expert such as ourselves is that not only do we do all the heavy lifting in terms of going out for quotes and getting you set-up in the first place but we will look after the ongoing administration as well.

Nadeem Farid
Head of Employee Benefits at Drewberry

Drewberry set up our insurance and were really helpful and made it very easy. I was really pleased at how responsive they are and how friendly and easy they made the whole process. I am delighted to be working with them.

Tara Wavre
13/03/2019
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