Death of an employee - Are you covered?

Companies are increasingly offering benefits such as Group life Insurance in order to help their employees feel financially secure and to assist the business with perceived moral and financial obligations on supporting a loyal employee's family should the unthinkable happen

With increasing awareness around mental health and an employer's duty of care, specialist bereavement counselling and probate assistance can go a long way in supporting employees and their families suffering from grief

What is Group Life Insurance?

Also known as ‘Death In Service’ or ‘Group Life Assurance’ the benefit is an insured Cash Lump Sum payment to the dependents/beneficiaries of an employee if the employee dies whilst covered by the policy

A typical policy pays out on death for any reason (including suicide) and at any time whilst the employee is covered – the employee does not have to die during work hours or on work premises

Employees are usually covered for a lump sum based on a multiple of salary. Usually 2, 3 or 4 times salary are common multiples, but this can be higher or lower or even a fixed amount. There is a growing trend for employers to offer a base level of cover and allow employees to purchase additional higher levels of cover via salary deduction

The lump sum payment is made tax-free (up to certain levels) and in the UK the scheme ‘Trustees’ have oversight on who the benefit is paid to. Each insured employee is entitled to choose their own beneficiaries and employees should be reminded on a regular basis to update their choices if necessary

Directors, Partners and employees can all be insured and in most cases are able to take advantage of the ‘Free Cover Limits’ offered by Group Life insurers. The Free Cover Limit is a level of cover offered by the insurer without the requirement for medical questions

Coverage will remain in place for employees until employment is terminated or until the specific term of coverage ends

Group Life is often seen as a vital benefit and its provision not only shows a Duty of Care to your employees but also allows them to feel secure in the knowledge that they are able to protect their family’s future. Valued employees are typically more engaged, and this can help improve loyalty and increase work ethic

Group Life in the UK

• In the UK, after statutory pension provision, it is the most commonly provided benefit
• The cost can be less than 0.25% of payroll
• The Free Cover Limit (level of cover offered by the insurer without the requirement for medical questions) can be above ￡500,000 per employee even if only 2 employees are covered
• Group Life is not a taxable benefit for the employee (‘Benefit in Kind’)
• Easy administration - Most insurers only require new employees to be notified to them once a year (although exceptions do apply)
• Most insurers now provide options to ease the administration burdens that previously applied to employers (including appointing Trustees, setting up a bank account and dealing with HMRC)
• Solutions are available for those employees who are affected by UK HMRC allowances
• Premiums paid are tax deductable and treated as a business expense*

*based on our understanding of current tax legislation

The design of Group Life Insurance has changed over the years with the decline of dependent pensions (due to rising costs) and the increase in employers allowing employees to ‘flex’ levels of lump sum cover up or down and/or cover their partners 

A number of insurers now offer additional support to employees and their families around bereavement including grief counselling and probate support both of which can be invaluable should the unthinkable happen and many of which are also available to employees should they be affected by death (eg of a relative, friend or colleague). Some insurers also offer Added Value services included within the premium such an Employee Assistance Programme, Virtual GP, Stress helpline, Employee Discounts and Rewards for healthy behaviour

Employer sponsored ‘Group’ Life insurance can be particularly valued by employees who have struggled to afford or obtain cover on an individual basis perhaps due to health conditions or smoker status

Group Life outside the UK

Rules around the payment of benefits can differ from country to country - advice and expertise in a local area can ensure you are meeting relevant requirements. A Consultant who can co-ordinate global benefit management can be a valuable asset

Single policies are available that can cover employees in multiple countries, however these may have restrictions (such as suicide) that need to be considered carefully in line with any contractual requirements that are in place to pay the benefit

Where a business has a footprint in more than one country premium costs can be reduced by ‘pooling’ multiple policies - this is generally available even if the policies in different contries are held with different insurer/brokers

Appointing a Consultant

If you are looking to set up a Group Life scheme for the first time, or review an existing policy, a Consultant will assess your circumstances and discuss the available options to help you understand the different types of insurance which might match your objectives

The Consultant can help you to decide on a specification of the cover you require so that the policy best suits your company’s requirements and employee demographic. They should also be able to provide you with information about benchmarks of the benefit

As most insurance business is undertaken via advisors rather than direct by employers, the Consultant is likely to have access to insurers, policies and special deals that are not available to the general public

The Consultant can broker the market to get the best deals for you. An independent broker (such as Eppione), will have access to all insurers and can easily shop around to find you the most cost-effective and suitable deal. Consultants are often able to use the quotations received and/or additional information to negotiate with insurers and further reduce costs

The Consultant can provide guidance and recommendation based on their experience of dealing with different insurers’ service levels / underwriting / claims departments etc and can provide assistance with underwriting and claims after they have helped set up your policy

The Consultant should review your policy on a regular basis to ensure it does not end up staying with the same insurer year after year and attracting increases where unnecessary

How I can help

I am an experienced Employee Benefits Consultant helping businesses of all sizes to find the best solutions in Employee Benefits, (Financial, Health and Lifestyle) and Business Protection 

I am a specialist in setting up UK benefits for multinational companies and as a member of a Global Broker network, partner with local knowledge and expertise in over 100 countries worldwide

In the UK, I advise employers setting up new schemes and those who have existing schemes in place; checking the compliance of existing policies, that cover is adequate for the needs of the business and that premiums paid are competitive

Eppione are independent brokers and can review all insurers. As we work on a global basis savings from Multinational Pooling will also be considered

I am always happy to discuss your objectives. If you would a no obligation chat, please contact me on [email protected] or 07493 405 963