Everything you wanted to know about Group Life Assurance – but were afraid to ask


Talking about dying can be difficult. It can understandably be emotive and, for some people, a subject to be avoided. But, as the cliché says - like taxes, it’s inevitable.  And like taxes, the savvy employer knows that planning for tomorrow can make life simpler today. Here’s all you need to know about making Group Life part of your employee benefits.

1.      What is Group Life insurance?

Group Life is insurance that pays out a tax-free lump sum to an employee’s beneficiary(ies) if that employee dies while the policy is current. You may also hear it called Death in Service, but it’s exactly the same.

2.      Who can be covered?

It’s up to you who you decide to cover, but a Group Life policy typically covers all of your employees. However, anyone who is off sick when the policy starts may not be covered until they return and the insurer may want to know about anyone who has been off sick for a long time, say over 3 months.

Normally, the policy comes with a non-medical limit (also known as a free cover limit), which means that most people are covered automatically. People whose cover is above that limit (usually your higher earners) will need to provide medical information.

3.      How much does it pay out?

It depends on the level of cover you want to provide. The lump sum is often calculated as a multiple of the employee’s salary. It’s your decision what multiple to use, but the higher the multiple, the higher your insurance premiums will be. 4x salary is a typical choice, but you can choose up to 12x. Or you may choose a flat level of cover, say £100k, for each employee no matter what they earn.

4.      Who gets the money?

The lump sum is first paid to the Trustees of the scheme, who then decide who should receive the benefit.  It’s a good idea to encourage your employees to complete a ‘beneficiary’ nomination form, which tells the Trustees who the money should go to. You should keep this form safe and pass it to the Trustees if your employee dies. The Trustees are not bound by the employee’s wishes, but would normally pay their nominated beneficiary, unless the employee’s situation had changed since they completed the form.

5.      Who can be a beneficiary – and how many beneficiaries can an employee name?

Anyone can be a beneficiary, but it’s usually a family member. And there’s no limit to the number of people an employee can name or any age-limit – whether it’s a 6-month-old child, or 75-year-old parent. The employee can also tell the Trustees what share of the money they think each beneficiary should get.

6.      Why is a Trust and Trustees needed for a Group Life policy?

It’s purely for tax purposes. By going through a designated Trust, there are tax benefits for employer and employee.

It also ensures that if there are any unusual circumstances around the death or the employee has a complicated family history, the Trustees can investigate and carry out checks to ensure the money goes to the right people. Not only does this give the employee peace of mind, but also takes the responsibility off your shoulders.

7.      How quickly does a claim pay out?

Assuming everything’s straightforward, the provider will normally transfer the money to the Trustees within a couple of weeks and the Trustees will transfer the money to the beneficiary(ies) as soon as possible. However, as mentioned above, in certain circumstances, they won’t release the benefit until any checks or investigations needed are completed.

8.      How do I set up a Trust?

Some insurance providers offer their own Trust, so you get all the benefits without the administration and the set-up costs.

If you want to choose your own Trust, it can be a bit complicated. There are ‘registered’ and ‘excepted’ schemes, and various deeds (novation, participation or amendment) needed to make certain changes (company name, adding extra companies, changes to the law etc.). We can help you choose the type of scheme that suits you best and explain what the administration of your own Trust entails.

9.      What happens if the employee leaves?

If they leave the company, cover usually stops. There are a couple of exceptions you can choose. Redundancy cover provides cover for up to 24 months, offering a safety net while the person finds another job. Early retirement cover continues to provide cover for someone who has had to retire early because of ill-health.

10.  Apart from the money, are there any other benefits that come with Group Life?

Yes, depending on the insurance provider, there may be other benefits included. For example an Employee Assistance Programme (EAP). This can provide employees with a range of practical and emotional support such as referrals to childcare and elder care, and information resources.  It may also give immediate family members access to bereavement support, including face-to-face counselling if they need it after an employee’s death.

11.  How does Group Life benefit me as an employer?

It marks you out as a company that cares about its people. And as a key benefit that protects people’s loved ones if the worst happens, it’s attractive to employees, helping you recruit and retain staff in a competitive jobs market.

A death can also be a traumatic event for other members of your workforce. If needed, you can provide access to critical incident support through an EAP provider to help all of your employees.

The provider may also give you access to other services such as line manager training on issues such as bereavement support or mental health.

For more information, contact an Elect Adviser here  

*This article has been written to help businesses understand what to look for when choosing  Group Life Assurance and is based on frequently asked questions about that policy.  It is for information only and is not specific advice. It is based on our current understanding of legislation, taxation and HMRC practice which may change in the future.