What are the benefits of Group Life insurance?

The benefits of providing group life insurance

Trying to come up with a benefits package which is relevant and motivates employees can be a difficult task, especially as there may be budget limitations to navigate around. Group life insurance cover could offer several benefits to both employers and employees.


Benefits for Employers

  • It's a low-cost way of providing a high value benefit for your employees
  • It shows employees you care about them and their families, having a potentially positive impact on staff morale and loyalty to the company
  • It makes you more attractive to potential employees during the recruitment process
  • It can help you retain good quality staff as part of a h2 benefits package
  • Taking out group life cover is usually more cost effective than employees taking out individual life insurance themselves
  • The premiums paid for group life insurance are usually considered a business expense, which reduces the cost to you as the employer (and makes the scheme tax-efficient)
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Benefits for Employees

  • Employees get the peace of mind of knowing their loved ones will be looked after financially in the event of their death
  • Provides Employees with life insurance cover at no cost to them
  • Staff don't usually have to undergo medical examinations for group life insurance, although in some instances providers may ask for people to undergo medical examinations
  • Providing the scheme is registered with HMRC or set up in trust, the money they receive from the insurance policy is tax-free (no inheritance tax needs to be paid on it) subject to the lifetime allowance
  • Trustees usually pay out quickly which makes things easier for families and loved ones during a highly stressful period
  • Staff morale may increase as they appreciate their employer more

Considerations for Employers when Setting Up a Group Life Insurance Scheme

Before deciding whether to take out group life insurance as a benefit for employees, there are several things you might want to consider to ensure you enter into the right scheme for your business, such as:

  • Whether you would offer the benefit to all your staff
  • The level of cover you want to offer your employees, including what multiple of their annual salary their family would receive in the unfortunate event of their death
  • Whether you select a scheme with additional benefits such as bereavement support or probate services
  • Group life insurance schemes are typically set up under a trust for tax efficiency. You need to consider whether you would set up your own trust or use a master trust, which the insurance provider for your scheme will run.

Should I Set Up a Trust for my Employees or Use a Master Trust?

Group life insurance policies are usually set up under a trust so that any pay outs made are not subject to inheritance tax, or included in the deceased's estate. A pay out can be made quickly at a time when it is most needed, whereas an estate can take months to settle.

Setting up a business trust

These are commonly known as corporate trusts. The responsibility for organising the trusts and agreeing pay outs fall to senior management or named trustees. The trustees need to:

  • Ensure they have up-to-date employee information and expression of wishes forms
  • Know the relevant legislation
  • Know how to deal with a claim should someone pass away, including disputes

Businesses may not have the expertise to deal with trust matters, or want to deal with the administrative issues of setting up and maintaining a trust, and therefore prefer to set up their group life scheme using a master trust.

What is a Master Trust?

  • All trust related governance and decisions are made by the master trust provider
  • The provider processes and pays out on claims made
  • The provider deals with any disputes, and may refer to the business for information but makes the final decision

A key difference between a corporate and a master trust is that a corporate trust moves with the company should they change group life insurance providers, whereas you cannot take a master trust with you. This is something to think about when making the decision on the kind of trust to set up for your business.

Most of the insurance providers on our panel will have Master Trusts set up that you can use for your group life insurance scheme. We will make it clear during the quote process which companies have this option available for you. If you choose to use a company that does not have a Master Trust, it will be your responsibility to register your scheme with HMRC and set up your own business trust before cover can commence.

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