Group Life Insurance

Also known as Death in Service or Employee Life Insurance

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What is Group Life Insurance? 

Group Life Insurance is a policy taken out by businesses which provides a monetary lump sum payment to an employee’s dependants (usually a partner or children), in the event that an employee passes away. 

It is one of the most cost-effective Employee Benefits to provide and one of the most popular amongst employers.

What is Group Life Insurance? 

Group Life Insurance is a policy taken out by businesses which provides a monetary lump sum payment to an employee’s dependants (usually a partner or children), in the event that an employee passes away. 

It is one of the most cost-effective Employee Benefits to provide and one of the most popular amongst employers.

Group Life Insurance

Why provide Employee Life Insurance?

Put simply, to provide financial security to the families of your employees if they were to pass away.

There is a huge protection gap when it comes to Life Insurance and whilst it’s assumed by many that  most people in the UK have individual cover, it’s actually estimated that less than a third of people (30%)* have any cover at all if the worst were to happen.

Then consider that there is an estimated 13.9 million dependant children ** and almost 11 million active residential mortgages *** outstanding, and you can start to appreciate the scale of the problem and the considerable risk to many families.

Many employers recognise these stark facts and to them, Company Life Insurance represents an opportunity to remove the stress and worry from an already traumatic situation.  Furthermore, a genuine investment in the wellbeing of an employee’s family goes a long way when trying to attract and retain the best calibre of staff.

*Moneywise 
** The Modern Families Index
*** Finder.com

Practical reasons

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It’s much less expensive than buying individual or family Life Insurance

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There is often no medical questionnaires or underwriting to join the plan

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It can cover pre-existing conditions

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It can be classed as a business expense

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It is not classed as a Benefit in Kind (P11d)

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Financial peace of mind for employees

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Life cover for employees who might have been declined individually

How much does Employee Life Insurance pay out?

There is quite a degree of flexibility here but most employers opt for either 2x or 4x multiples of employee salary. It is, however, possible to have much higher levels.  

It is also quite common for businesses to tier the benefits so that different categories of staff enjoy different benefit levels. 

In the event of a claim, this is paid as a tax-free lump-sum to the nominated dependants.

Does “Death in Service” mean that employees have to be at work when they die?

No – this is a commonly asked question and it’s understandable considering the term.  Employees do not have to be physically at work, they simply need to be actively in your employ. 

 

What is an Expression of Wish Form?

This is how employees with Company Life Insurance register who they wish the benefit to be paid to in the event of their death. The form allows members of the scheme to list their beneficiaries and declare how certain percentages of the benefit should be divided. 

The form itself should be kept securely on file with the employers HR team and does not need to be shared with the insurer.

What is the minimum number of employees for employee life insurance?

Many insurers require at least 5 employees; however, there are insurers who can cater for as few as two staff.

How much does Group Life Insurance cost? 

There are a range of variables to consider for pricing, but here are some examples for different sized businesses;

5 staff

2x salary benefit

Average age – 42

Salary roll – £150,000

Home Counties location

New to market with no long-term absentees 

£500 total premium per annum

10 staff 

2x salary benefit

Average age – 42

Salary roll – £300,000

Home Counties location

New to market with no long-term absentees 

£600 total premium per annum

20 staff 

2x salary benefit

Average age – 42

Salary roll – £1,200,000

Home Counties location

New to market with no long-term absentees 

£840 total premium per annum

50 staff 

2x salary benefit

Average age – 42

Salary roll – £3,000,000

Home Counties location

New to market with no long-term absentees 

£2,064 total premium per annum

What details are used to calculate the premium?

There is quite a bit of info needed for an accurate Group Life quotation compared to other Employee Benefits (such as health insurance), however, it should be information readily available to any HR team or Finance dept.

For all employees;

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Age

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Gender

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Location of work

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Occupation (to account for any dangerous jobs!)

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Salary

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Details of any employees who are absent from work due to sickness

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Details of any previous or current long-term absentees

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Details of any employee who has suffered with a serious medical condition in the past 12 months

Does Employee Life Insurance cover staff when abroad? 

 

If companies have members of staff who are based in the UK but that travel occasionally for work, these employees can be included under Company Life Insurance, but it’s important to let the insurer know at outset.  

If a company has numerous employees located in different parts of the world, it might be better to consider International Group Life cover.

 

Does Group Life Insurance cover pre-existing conditions?

Yes – there is no medical underwriting or questionnaires for employees under Group Life Insurance, which is one of its most attractive selling points. 

However, employers are required to notify insurers of any employee who has suffered with a major medical condition in the last 12 months or been absent from work for a significant amount of time.  If any employee is suffering with a major medical condition when the plan is incepted, the insurer may require this member to be underwritten.

What is a Free Cover Level?

As there is no medical underwriting for employees under Group Life Insurance, insurers instead set a financial benefit level which every employee can be automatically insured up to. 

For example, insurer X might offer a Free Cover Level of £200,000 for a company with 30 employees.  The company has selected a benefit of 4x salary for each of their staff upon death.  This means that an employee can earn a maximum of £50,000 per annum and join the scheme without any underwriting (4 x £50,000 = £200,000). 

If an employee earns more than £50,000 and therefore has a benefit in excess of the £200,000 Free Cover Level, the additional benefit can only be insured if the member opts to be medically underwritten.  If they choose not to be medically underwritten, they will still be covered for the £200.000.

What is a Master Trust?

Whether a company has a Registered of Excepted Group Life Insurance scheme, it must be operated in conjunction with a Trust. The Trust is typically operated by a legal firm (appointed by the insurer) to manage any claims and process payment to the elected beneficiary. 

Companies are free to set up their own Trust, however, this can be time consuming and costly.  Instead, many choose to simply use the insurer’s Master Trust, which is provided free of charge and involved very little input to set up.

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