Frequently asked questions
Group life insurance is one of the most widely valued employee benefits available to UK employers. Often referred to as death in service benefit, it provides financial support to an employee’s family or dependants if the employee dies whilst employed by the organisation. It is also one of the most cost-effective employee benefits available to many employers.
For many small and medium-sized businesses, however, there can be uncertainty around how group life insurance works, who it protects and whether there is a minimum number of employees required to establish a scheme. This guide answers some of the questions most frequently asked by employers.
What is group life insurance?
Group life insurance is an employer-sponsored life assurance policy that pays a lump sum benefit if a covered employee dies whilst employed by the business.
The benefit is normally expressed as a multiple of salary, such as two, three or four times annual earnings, although some schemes use fixed benefit amounts. The policy is arranged by the employer and applies to all eligible employees within the scheme.
How does group life insurance work?
The employer arranges a policy with an insurer and pays the premiums on behalf of its employees. If a covered employee dies whilst in service:
- a claim is submitted to the insurer
- the insurer pays the insured benefit
- the payment is normally made through a discretionary trust
- the trustees distribute the proceeds to the employee’s beneficiaries or dependants
Most schemes also ask employees to complete an expression of wish form so that trustees understand who the employee would like to benefit from any payment.
How does group life insurance help families?
The death of a partner, parent or primary earner can have a significant financial impact on a household. A group life benefit may help a family to:
- reduce or repay a mortgage
- replace lost income during a period of adjustment
- cover childcare or education costs
- meet everyday living expenses
- create financial stability during an extremely difficult time
For many employees, the financial protection offered to their family is the aspect of employee benefits they value most highly.
Is group life insurance the same as personal life insurance?
No. Personal life insurance is arranged and funded by an individual. Group life insurance is arranged by the employer and generally funded as part of the employee benefits package.
Eligible employees are usually included automatically under the scheme rules. The two forms of protection are often complementary rather than alternatives.
How much cover do employers typically provide?
The most common levels of cover are:
- two times salary
- three times salary
- four times salary
Some employers choose a higher multiple of earnings, whilst others prefer a fixed lump sum approach for all employees. The appropriate level of cover will depend on workforce demographics, benefit objectives and budget.
Do employees need medical underwriting?
In many cases, no.
One of the advantages of group life insurance is that employees are often covered without the need for individual medical underwriting up to the insurer’s free cover limit. This can make protection available to employees who may otherwise find it difficult or expensive to obtain individual life insurance.
Any underwriting requirements will depend on the insurer, the scheme design and the level of benefit being provided.
Is there a minimum number of employees required?
This is one of the questions most frequently asked by SME employers. There is no universal market-wide minimum. Participation requirements vary between insurers and may depend on the type of scheme being established.
Many insurers are comfortable covering relatively small workforces, which means group life insurance can be a realistic option even for smaller employers. The availability of terms should always be confirmed through a market review.
For many businesses, the cost is lower than they initially expect.
Important: Minimum membership, eligibility and participation requirements differ between insurers. These should be checked against the proposed workforce and scheme design before cover is recommended or implemented.
Is group life insurance expensive?
Group life insurance is often regarded as one of the most affordable employee benefits available. Premiums are influenced by factors such as:
- employee age profile
- payroll and salary levels
- benefit multiple selected
- industry sector
- membership size
- claims experience
Because the risk is spread across a workforce and claims are relatively infrequent, the cost is often modest when compared with the value delivered to employees and their families. Insurers frequently provide rate guarantees to improve cost certainty.
Is group life insurance tax efficient?
Group life schemes are generally established through a discretionary trust structure.
This can help ensure benefits do not form part of the deceased employee’s estate and may help avoid delays associated with probate. Tax treatment will depend on legislation and individual circumstances, and employers should obtain professional advice when establishing a scheme.
Does group life insurance support recruitment and retention?
Many employers believe so. Whilst salary remains important, employees increasingly value benefits that provide security and peace of mind for themselves and their families.
For SMEs competing against larger employers, group life insurance can be a relatively low-cost way of strengthening the overall employee value proposition.
What happens when an employee leaves?
Group life cover is normally linked to employment with the sponsoring employer. When employment ends, cover under the group policy will usually cease. Employees who require ongoing protection may wish to consider their own personal arrangements.
Why many SMEs choose group life insurance
Group life insurance remains one of the simplest employee benefits to understand and one of the most meaningful. It provides valuable financial protection for employees’ families, is straightforward to administer and can often be implemented at a relatively modest cost. For many employers, it forms the foundation of a broader protection and wellbeing strategy.
Talk to IHC
Whether you employ 10 people or 500, group life insurance could provide valuable financial protection for your employees’ families whilst enhancing your employee benefits package. At IHC, we help employers understand:
- whether group life insurance is suitable for their organisation
- likely costs and benefit structures
- insurer participation requirements
- registered and excepted trust arrangements
- how group life insurance fits within a wider employee benefits strategy
If you would like a professional and informal discussion about group life insurance, contact IHC. We would be pleased to help you understand the options available and whether a scheme would be appropriate for your organisation and workforce.
