FAQS – Group Life Insurance

See our main page on Group Life Insurance

Would I need to cover all my staff with a Group Life plan?

No – however, you would need to include all employees that fulfil the entry criteria for the scheme. For example, should the criteria state that “all employees with a minimum of 5 years’ service be included”, then you would need to include all members of staff who have over 5 years’ service.

Would all my staff need to be covered at the same level?

No – you could have different categories of cover within the same scheme. For example, if “All Managers” have 5 times their salary level as a benefit, this could be one category, or “All Directors” could have 7 times their salary level as another category. Usually, a minimum number is required in every category.

What if I have staff based overseas – can they be covered too?

It is worth checking Foreign Office advice for definitions of “safe countries”, as some insurers will cover overseas staff, but with some restrictions added.

What level of benefit can we offer on Group Life Insurance?

Benefits tend to be based on a multiple of the employees’ salary (between 2 and 10 times – this depends on the employer and industry) or as a lump sum, e.g. £500k. There is usually a maximum benefit per employee which differs between insurers but is typically between £5-£10 million. There may also be a single incidence limit which covers a major incident on the same site or workplace and this is usually specified at quote stage.

How tax-efficient are the policy premiums and benefits?

As the benefit is paid through a trust to the beneficiaries of the employees, it is usually tax-free – there is no P11D benefit chargeable on the employee. Normally, the policy premiums can be offset against corporation tax.

Would our employees need to submit their medical details/evidence?

In comparison to a personal Life plan, the underwriting for a group life policy is simpler. It will depend on several factors including the age profile and size of the group to be insured. An insurer will provide a “free cover limit” – if an employee’s benefit falls below this level, then no medical evidence is needed. However, if the benefit required is above the free cover limit, the employee would need to complete a medical questionnaire (benefit will be restricted to this level until this is processed). If you want to insure a smaller group of staff, e.g. under 5 people, before any terms are offered, they may also be asked to complete a medical questionnaire.

What does Group Life cover mean?

This is a type of Life insurance scheme that covers a group of people, usually company employees, in a single policy instead of multiple individual policies. The policy premiums can be considerably cheaper than individual rates due to the fact the rates are based on the numbers in the group. This can make Group Life insurance a useful and popular employee benefit for companies.

What would happen if an insured employee dies?

On joining a Group Life scheme, an insured employee would be asked to nominate their beneficiaries. In the event of the employee’s death, the named beneficiaries would receive the tax-free benefit directly.

How would a Group Life scheme benefit an SME?

As a highly-valued, cost-effective benefit, it can help a company to retain and attract staff in a competitive marketplace. Plus, it demonstrates that a company values their employees, as it is considered a caring and helpful benefit, therefore boosting morale.

What if I want to transfer the Group Life scheme to another provider?

You can do this – however, the new insurer will require the scheme to be underwritten again.

My employees may already have their own Life policy in place – does this matter?

Many people only protect their mortgage and usually do not give much thought to other outgoings, such as bills and debts – this has led to a major shortfall in UK insurance. However, Group Life Insurance is an important addition to any protection portfolio, as financial support can be provided should the worst happen to an insured employee.

Are there different levels of cover available?

Many companies tend to cover up to 10 times their annual salary – usually, cover is set as a multiplier of salary or as a fixed sum. In some cases, higher levels may be available, especially when dividends or regular overtime need to be considered.

How do we know the amount of cover we need?

The employees’ industry and the market norm for their sector is usually considered, and the company would decide the level of benefit needed.

Would Group Life Insurance be subject to tax?

As policy premiums are not classed as a ‘benefit-in-kind’, thus, no P11D tax is payable.

How would the lump sum benefit be paid out?

The payment would be through an insurer’s Master Trust arrangement – as a result, this is normally tax-free.

What is the length of a Group Life policy?

Usually, up to the employees’ normal retirement age – however, if employees stay working for a company after this age, the insurer may cover them as long as they stay employed.

Would policy payments remain the same?

Usually, payments are set for a period of 2 or 3 years – however, payments would vary if you add a new employee (if they become eligible) or you remove an employee from the scheme, should they leave the company.

Would any state benefits going to the beneficiary be affected?

The lump sum amount would not be affected if the beneficiary is receiving state benefits. Although, if the beneficiary exceeds the capital limit for e.g. housing benefit, this may be affected, as well as any other means-tested benefits.

What if my employees want to cover their family on a Group Life policy?

Only company employees can be covered, not family members.

Do we have to place the scheme in trust?

Yes, as a company, you must place the Group Life scheme in trust – this must be registered with HMRC or you could use the insurer’s Master Trust arrangements.

Is there a minimum number of employees required for Group Life insurance?

Usually, a minimum of 5 employees (members) are required to begin a scheme – however, many insurers now offer schemes for less members; the underwriting for smaller numbers is far stricter compared to a larger group of employees.

Will employees who smoke be penalised?

No, as the rates are set on a group basis, smokers are not penalised.

What does the term Registered Group Life Scheme mean?

Most Group Life policies are set up as ‘Registered Group Life Schemes’ i.e. registered with HMRC, either directly or via the insurer. This means they fall under Pensions Regulations and any lump sum benefits are aggregated with benefits from other registered pension schemes, which are then tested against the Lifetime Allowance (LTA).

What does the term Lifetime Allowance (LTA) mean?

The Lifetime Allowance is a term indicating the maximum value of benefits that can be accrued in a pension scheme whilst continuing to benefit from tax relief. The current limit is £1m; any benefit above this amount which was taken as a lump sum would be liable for tax at 55%.

What does the term Excepted Scheme mean?

Suited to high earners with higher amounts of benefit accrued in their pensions, an Excepted Scheme is a Group Life policy written under life insurance legislation. It is not written under pensions legislation, which means the relating benefits would not be tested against the Lifetime Allowance. However, an Excepted Scheme would be subject to more complex inheritance tax rules that apply to discretionary trusts.