Life Insurance For Employees

What Is Employee Life Insurance?

Also known as Group Life Insurance or Death in Service, Employee Life Insurance is a policy that your business takes out to protect your team. It pays a tax free lump sum to your employees’ loved ones if they pass away while employed with you.

It’s a highly valued employee benefit – over a third of our latest survey respondents receive it, and a fifth want this type of protection added to their company benefits package.

It provides financial security to a worker’s loved ones in the event of their death. The payment can be used in whatever way they see fit, such as:

• Covering funeral costs
• Paying off an outstanding mortgage or any other debts
• Funding everyday living expenses / commitments.

Why Is Employee Life Insurance Important?

Unlike Workplace Pensions, Company Life Insurance for employees is not a mandatory employee benefit in the UK – you don’t have to offer it to your team unless you want to.

That said, it is a valuable and cost effective benefit to offer. With money worries being a leading cause of employee stress outside of work, having a company policy means employees save on personal plans. It also gives them valuable peace of mind, knowing their loved ones will be taken care of should the worst happen.

Offering benefits employees actually want can help them to become more engaged and productive at work. Seeing that only 13% of UK employees are truly happy with their current benefits package, and 71% ready to leave their current job for better pay and benefits, offering a solid benefit such as Employee Life Insurance is a smart move.

Group Life policies are very comprehensive. If an employee passes away while in your employment, insurers will pay out – regardless of whether they were within the workplace or on parental leave at the time.

Joseph Toft
Senior Consultant, Employee Benefits

How Does Employee Life Insurance Work?

Employee Life Insurance is paid for by your company. You set up the policy on behalf of your team, choosing what level of cover you’d like to offer. In the unfortunate event of an employee’s death, the employee’s beneficiary can make a claim. The tax free lump sum will get paid directly to the employee’s nominated beneficiary.

How Much Does It Pay Out?

It’s up to you as an employer to decide how much cover you want to offer. The amount is usually a multiple of an employee’s salary i.e. 2x or 4x. So if you opt for a 2x salary level of cover, an employee earning £40,000 per year would get an £80,000 payout.

What Doesn’t It Cover?

There are certain situations in which a Group Life policy won’t pay out. An employee’s beneficiaries won’t be able to claim if the cause of death is related to:

• Suicide
• Alcohol or drug abuse
• Dangerous sports and hobbies
• Pursuit of criminal activity.

Types Of Employee Life Cover

When it comes to setting up Employee Life Insurance, there are two different types to choose from: registered or excepted.

Registered Schemes

With a registered scheme, your policy is subject to pension tax rules. When an employee dies, the lump sum payment counts towards their Lifetime Allowance (LTA). If the amount paid to the employee’s beneficiaries exceeds this allowance, they’ll need to pay tax on it.

Registered schemes are the most common type of Life Insurance for employees. They’re flexible, covering employees who have different salary amounts of cover.

Excepted Schemes

An excepted policy isn’t subject to the same pension tax rules as a registered scheme. With this type of policy, the employee’s benefit does not count towards their LTA.

Excepted schemes are best suited to high earners and employees with significant pensions.

Why Offer Employee Life Insurance?

There are a number of benefits to offering Employee Life cover, for both you and your employees.

Benefits For Employers

From an employer’s point of view, setting up an Employee Life Insurance policy helps:

• Attract and retain the best talent
• Reduce staff turnover
• Improve employee morale and engagement
• Reduce stress and absenteeism
• Show staff that you value them and their wellbeing
• Make your business stand out from your competitors.

A comprehensive employee benefits package that includes Employee Life Insurance can be the difference between keeping your top talent and losing them to another company.

Benefits For Employees

Cost is often the biggest barrier to taking out a personal Life Insurance policy, so having a company plan is a good way to support your employees’ financial wellbeing. It also provides valuable peace of mind that should they pass away, their family will have some financial security.

And unlike personal policies, group plans don’t need any underwriting. So your entire team will be covered, even if they have pre-existing health conditions.

Other benefits of Employee Life Cover include:

• Your team’s covered, regardless of the cause or place of death
• Payout isn’t subject to Inheritance Tax (as long as the policy is written into trust)
• No need to disclose health or medical conditions (due to the free cover limit that comes with this type of policy)
• Nothing for employees to pay – it’s covered by your business.

Additional Benefits

Alongside the core cover, many insurers offer a variety of additional benefits and wellbeing services, most of which are free with the policy. These aim to support your employees on a day-to-day basis. Some of the most common extra perks include:

• Virtual GP services
• Medical and mental health helplines
• Physiotherapy
• Nutritional support
• Gym and fitness tracker discounts.

Is Your Business Eligible For Employee Life Insurance?

Employee Life Insurance is often one of the first benefits an employer will introduce. But to set it up, you’ll need at least three full-time workers on the payroll. Your employees also need to be:

• Employed with the right to work in the UK
• Within the minimum and maximum ages required by the policy
• An active employee at the company.

Some employers add more eligibility terms which might be specific to their business. For example, you might want to exclude employees still in their probationary period, or those under a certain wage threshold.

Employee Life Insurance For Small Businesses

If you want to provide your workforce with Life Insurance but have fewer than three employees, you can opt for something called Relevant Life Insurance.

Rather than one policy that covers a group of people, Relevant Life provides an individual policy to each member, paid for by your company. While this is a good option for micro-businesses, it means your employees’ policies will be medically underwritten, and any pre-existing conditions could be excluded.

Relevant Life policies have similar tax advantages as Group Life. It provides the same benefits, including a payout if an employee dies while working for you.

Relevant Life is ideal for small businesses, as well as Company Directors and Contractors who’d otherwise have to pay for a personal policy.

When set up properly, it’s a highly tax-efficient form of company-paid Life insurance. Call us on 02084327333 or email help@drewberry.co.uk.

Nick Nelms
Senior Consultant, Employee Benefits

How Much Does Life Insurance For Employees Cost In The UK?

Every business is unique, which means there’s no one-size-fits-all approach when it comes to the cost of Life Insurance for staff. This makes it challenging to provide an exact figure upfront. Various company-specific factors, along with general policy options, play a significant role in determining the final cost.

The pricing will depend on the following key factors, and the insurer you buy cover from:

• Chosen level of cover
  The more cover you provide, the higher the risk for the insurer. This will be reflected in the price
• Average age of employees
  Older employees are more susceptible to developing a serious illness or suffering an injury. To cover this risk, premiums will be higher
• Group size
  The more employees you buy cover for, the higher the cost of a policy. However, larger businesses often get a discount due to economies of scale
• Staff salaries
  This will help determine how much you wish to insure each employee for. It’s also possible to set up a policy with different cover amounts depending on what an employee earns. For example, you may want to cover senior members for a higher amount than junior employees
• Your industry
  Some industries and job roles are riskier than others. Office-based work is typically less risky than the construction industry, for example. The riskier the occupation, the higher the premiums.

Alongside these key contributing factors, insurers may want to know:

• Where employees are based for work
• Whether your company requires employees to travel overseas
• If any staff are on long-term sick leave at the time of getting a quote.

Average Cost Of Employee Life Insurance In 2024

As mentioned above, It’s difficult to provide an exact price due to the many factors at play. But we’ve pulled together some quotes to give you a rough idea.

The following table shows two example premiums for two of our recent clients. These quotes are based on location and group size, but it’s important to remember prices will vary considerably from business to business.

We’ve also got an entire guide dedicated to the cost of Group Life cover per employee.

How Is Employee Life Insurance Taxed?

As we’ve mentioned, Employee Life Insurance provides a tax-free lump sum payment if a worker dies while working for you.

The premiums you pay for the group policy are classed as an allowable business expense. This means the premiums are exempt from your yearly corporation tax bill.

For your employees, the good news is that Employee Life Insurance is not a P11D / Benefit in Kind, so there isn’t any extra tax for them to pay on the benefit.

How To Set Up Employee Life Insurance For Employees

Setting up Employee Life Insurance is relatively straightforward. While it’s possible to do yourself, we know comparing quotes and choosing the right scheme can be complicated.

Not only that, you’ll find it hard to get group quotes online as there aren’t any quote calculators available.

At Drewberry™, we work closely with all the leading UK insurers and can do the heavy lifting on your behalf. What’s more, we’re in a unique position to negotiate better rates in most cases.

To set up your Company Life Insurance, the process typically looks like this:

• Benchmark your industry and identify the level of cover businesses in your sector provide
• Our financial advisers go out to the market, using anonymous employee data provided by you, to get the best quotes
• We’ll deliver a recommendation report, detailing our findings
• Then we’ll agree on your final budget and review the policy terms
• If necessary, we’ll negotiate with insurers for better terms in relation to our market research
• A provider is selected and documentation, including trust information, is completed
• We’ll then help you to launch the scheme and communicate it to your staff.

Our support doesn’t end there, though. Part of our service includes regularly reviewing your benefits to ensure they remain cost effective and suitable for you.

Setting Up The Trust Correctly

All Group Life Insurance policies are written into trust to ensure it’s set up correctly. No group policy can go live without one.

What Is A Trust?

A trust is a legal agreement that essentially signs over the benefit amount of the policy payout to named beneficiaries.

Writing a policy into a trust means the payable amount isn’t included in the deceased’s estate. There isn’t any Inheritance Tax to pay on the benefit, ensuring the employees’ loved ones get the full amount without paying tax on it.

The company-paid Life Insurance will be written into trust. Doing so protects the employee’s payout and ensures their loved ones keep the full amount.

As the employer, you have two ways of writing the group policy into trust. You can:

• Set up your own trust and handle administration as the employer
• Use the insurer’s master trust.

Many of our clients opt for the insurer’s master trust, as it’s a convenient way of managing the Group Life policy. In a trust, the trustees manage the policy and handle the claim payout when needed. It saves time and reduces how much admin you’ll have to do.

Without a trust, IHT is payable at 40% on assets worth over £325,000, meaning beneficiaries could lose nearly half of the payout.

Whichever option you pick, it’s crucial that the trust is set up properly as it can impact who the benefit is passed to in the event of an employee’s death.

We can’t reiterate enough how important a trust is. It ensures the lump-sum benefit of the policy remains separate from your business. And it also makes sure that, in the event of an employee’s death, their loved ones don’t have to pay Inheritance Tax.

Joseph Toft
Senior Consultant, Employee Benefits

We understand that this can all sound a bit complex, so if you’re unsure about trusts and how they work, please don’t hesitate to get in touch with us. You can pop us a call on 02084327333 or email help@drewberry.co.uk.

How Does Group Life Insurance Fit In With Other Employee Benefits?

Employee Life Insurance is relatively cheap and easy to set up, and staff value it highly. It also provides a good foundation for the introduction of other benefits, including:

• Group Critical Illness Cover
  Group Critical Illness pays out a lump sum if an employee develops a critical illness, such as a heart attack, cancer, or stroke
• Group Income Protection
  Alongside your company’s sick pay policy, Group Income Protection offers a monthly income to an employee if they’re medically unfit to work
• Business Health Insurance
  Business Health Insurance pays for private healthcare, allowing your staff to bypass NHS waiting lists and receive prompt care for acute medical conditions
• Corporate Health Cash Plan
  A Corporate Health Cash Plan provides monetary support to staff, in the form of cashback, for their everyday medical expenses. This typically includes routine dental and optical services, but can also include cashback for prescriptions and pain-relieving therapies.

As well as core benefits such as those listed above, you can also offer Salary Sacrifice Schemes.

These allow employees to exchange part of their salary for non-cash benefits, such as a bicycle, an IKEA or Currys purchase, or pension contributions. As a result of reducing their salary, both employees and your business benefit from National Insurance savings.

Nick Nelms
Senior Consultant, Employee Benefits

Compare Best 6 UK Employee Life Insurance Companies 2024

As an independent Employee Benefits consultancy, we work closely with the UK’s top insurers to find you the best scheme for your team.

The insurers we work with include:

• Aviva
• Canada Life
• Legal & General
• MetLife
• Unum
• Zurich.

Once we’ve done our research and received quotes from the best Life Insurance providers, we’ll send you a personalised report with our findings. Our expert team will recommend an insurer that they believe will provide the best cover and service levels to your staff.

Need Help? Get Expert Employee Life Insurance Advice

There’s lots to consider when setting up Life Insurance for your staff. Your budget, your team’s priority and your employee engagement strategy will all be important factors affecting which product is right for you.

Our Drewberry experts are here to help, making sure you get the most suitable scheme for your people. We handpick benefits that attract, retain, and reward. To speak to one of the team call 02084327333 or email help@drewberry.co.uk.

Why Speak to Us?

We started Drewberry™ because we were tired of being treated like a number.

We all deserve a first class service when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

• We are award winning 🏆 independent insurance advisers who work with all the leading UK insurers
• You’ll speak to a dedicated expert from start to finish
• We are very proud of the 3902 and growing independent client reviews rating us at 4.92 / 5
• We are authorised and regulated by the Financial Conduct Authority. You can find us on the financial services register here 🧐
• Claims support when you need it most.