If an employee dies during their tenure, Group Life Insurance (also known as Death in Service Insurance) can ensure the financial security of their loved ones.
Introduction
It is not surprising that Group Life Insurance consistently ranks among the most sought-after employee benefits.[1] But is it the right choice for your organisation? From eligibility to costs to taxes, there is a lot to consider if you want to introduce it to your workforce.
Here are five important facts about Group Life Insurance to help get you started.
1) There are two types of Group Life Insurance
These are the standard Group Life Insurance policies and the more niche Relevant Life Insurance policies. Should you wish to do so, you can offer both together or separately.
Group Life Insurance (typically) pays out a lump sum equivalent to a multiple of salary. You can also include additional services like wellbeing support, discounts, and bereavement counselling. If an employee becomes terminally ill and is expected to live less than 12 months, some policies will let them claim all or part of the payout before they pass away.
Relevant Life Insurance is slightly different. While it can pay out a lump sum equivalent to a multiple of salary, it is not limited to just this amount. Therefore, it can be appropriate for high earners and directors who receive dividends and bonuses alongside their annual wages.
2) Group Life Insurance can help you save tax
Neither you nor your staff pay National Insurance on policy premiums. Furthermore, Group Life Insurance policies are an allowable business expense for limited companies or if you are a self-employed sole trader. Since Group Life Insurance policies are placed in a Discretionary Trust, the payouts will not form part of your employee’s estate for Inheritance Tax purposes either.
You should, however, check HMRC’s guidelines to see if you are eligible for such tax relief. Note that any interest earned on the lump sum payout will still be subject to Income Tax. Although they are rare nowadays, the same is true if the policy pays out as a Dependant’s Pension instead. This is because Dependant’s Pensions provide regular payments and these count as a form of income.
3) Group Life Insurance is not the same as personal Life Insurance
While they may seem similar, each has distinct features, advantages, and disadvantages.
Personal Life Insurance covers employees even if they leave your organisation. It can be extended to their spouse, and they can choose how much their beneficiaries receive as a payout instead of it being linked to their salary. However, employees must cover the cost of any private protection themselves. Under Group Life Insurance, staff do not pay the premiums themselves. Considering how expensive personal Life Insurance can be, offering this alternative can incentivise employee loyalty.
Personal Life Insurance providers can also increase premium costs or decline individuals based on their health and lifestyle. Group Life Insurance providers do not usually require this information if the employee’s potential benefit is lower than the provider’s non-medical limit. This can mean your organisation may become more attractive to valuable talent who, for one reason or another, are unable to obtain personal Life Insurance policies.
4) Group Life Insurance is a good way to demonstrate care
Increasingly, people are gravitating towards employers offering a robust benefits package, not just a good salary. These ‘extras’ are a tangible way of improving the long-term wellbeing of your staff.
Since Group Life Insurance impacts their loved ones, you are not just showing your commitment to your workers, but those that mean the most to them too. As long as they continue working for you, they will have the peace of mind that their families will not be without if the unthinkable were to happen.
5) Group Life Insurance is relatively affordable
Research by Globacare found that Private Medical Insurance is the most sought-after benefit.[2] It can, however, be prohibitively expensive. Group Life Insurance is also included in their list of the most desirable benefits so it could be a viable alternative for small businesses and charities.
Costs will vary based on several factors. For example, providers will analyse the average age of staff, how hazardous individual job roles are, and the number of employees you wish to cover. Older staff will mean higher premiums, but the more people insured, the lower the price becomes per head.
As far as employee benefits go, Group Life Insurance is very cost-effective. When weighed against the potential for improved morale and stronger loyalty, these are small investments for rewarding returns.
How can we help you?
Despite being beneficial for both employers and employees, the costs and regulations related to Group Life Insurance policies can appear daunting.
As independent financial planners, we have access to the whole market. Our expert team can curate a benefits package that your workforce will value – without breaking the bank.
If you wish to discuss your options, or review your existing arrangements, please contact us. We provide a 10 per cent discount on our initial fees for members of NCVO.
To arrange an initial no cost, no obligation, consultation, then please fill out the contact form below. Alternatively, you can call 01603 706 820 or email info@lffp.co.uk.
Sources
[1] Zainal, N. (2023) What are the ten best employee benefits to offer staff?, Globacare. Available at: https://www.globacare.co.uk/guides/what-are-the-ten-best-employee-benefits-to-offer-staff (Accessed: 10 October 2024).
[2] Zainal, N. (2023).
Important information
This is solely for informational purposes and nothing in it is intended to constitute advice or a recommendation. The impact of taxation (and any tax relief) depends on individual circumstances.
This has been prepared based on our current understanding of UK Law, Taxation and HMRC practice, all of which could be subject to change in future.
