What is group life assurance?

Group life assurance, sometimes referred to as death in service benefit, will cover employees for a financial amount in the event of their death. If an insured employee passes away and a valid claim is made, the insurance provider will pay their beneficiaries a cash lump sum or regular pension payments.

Group life assurance is an employee benefit organised and paid for by a business for the benefit of its employees. It may offer many benefits to a business and its staff, and policies are customisable to suit different wants and needs.

How does group life assurance work?

Group life assurance is purchased by a company for its employees, so it's up to senior decision-makers to decide who's covered, the level of coverage, the type of benefit, who the provider is, and other policy options.

Employees will be covered against their death and will remain covered for as long as the policy is active, and they continue working for the same employer. If an employee leaves employment, they will no longer be covered.

If a valid claim is made, the insurance provider will either pay out a cash lump sum or pension payment to their family or dependents. Precisely how much this is depends on the policy details, but as an example, this may be 4x their annual salary or a flat amount per employee. 

What are the different benefit options?

You may have the option between two different payout options:

1. Cash lump sum - A lump sum will be deposited into a trust that will oversee the distribution of funds to beneficiaries. The amount will depend on the policy and may be a multiple of an employee's salary or a fixed amount. For example, if the policy is set to pay 4x an employee’s salary, and they’re earning £50,000 per year, group life assurance will pay £200,000 as a lump sum. 

2. Death in service pension - Instead of a cash lump sum, beneficiaries will inherit a pension that offers regular payments to the beneficiaries. 

How does it differ from life insurance?

Life insurance and life assurance work in a very similar way, but the key difference is around how long each policy lasts:

1. Life assurance - Typically covers you for your entire life, with no fixed expiry date.

2. Life insurance - May only cover you for a set period of time, or ‘term’.

What happens when an employee makes a claim?

Life assurance claims are usually handled through a trust. When a claim is made, the payout is deposited into a trust where the trustees will allocate the funds to the different beneficiaries. Regardless of whether you've opted for a lump sum or pension payments, group life assurance claims won't usually be subject to inheritance tax.

What benefits does group life assurance offer?

Group life assurance may provide benefits to a business and its staff in varying ways. Some examples of what you may experience include:

1. Financial security for employees - The loss of a salary for any household may lead to financial difficulties on top of the grief caused by death. The payout from a life assurance policy can be used to financially support the family of the employee who passed away with costs such as mortgage payments, funeral fees and daily expenses.

2. Attract talented staff - As an employee benefit, life assurance may be a deciding factor for an employee to join your business over a competitor who doesn’t offer the cover.

3. Tax deductible - Life assurance may be deductible from your company profits, helping to reduce your tax bill while offering a benefit to your employees.

4. Flexible cover options - Policies will often have different levels and cover options, making it easy to tailor life assurance around your business and your staff. The ability to tailor a policy may help you to ensure you’re receiving the maximum benefit for the cost.

5. Additional support - Depending on your provider and policy, your employees may get access to additional support, such as health and wellbeing resources.

6. Cost savings for your staff - Compared to an individual purchasing their own policy, group life assurance will provide cover to your staff at a much lower cost. This means your employees may not need to purchase similar cover themselves, resulting in a cost-saving they can use towards other insurances or their daily spending.

7. No medical examinations required - Some group life assurance policies will cover your employees without requiring them to take medical examinations, helping a larger group of your staff benefit from the cover regardless of their medical history.

8. Simplified admin - Purchasing life assurance for your entire group of employees may offer simplified admin compared to purchasing individual policies for individuals.

9. Retain your employees - Employee benefits packages may play an important role in retaining your best staff. They’re not easily replicated by competitors, and the extra value offered by life assurance may be one of the deciding factors in their decision to continue working for you.

10. Avoid inheritance tax - As payouts for group life assurance are handled through a trust, dependents won’t pay inheritance tax as part of the employee’s estate.

Group life assurance cost

The cost of group life insurance will vary depending on who you’re covering, how many employees are included in the policy, the level of cover and many more factors. For an accurate cost, please contact one of our brokers who will be happy to help you, but otherwise, take into account the following as they may all impact the cost:

1. Age of employees
2. Number of employees
3. Level of cover
4. Who the provider is
5. Occupation

Compare group life assurance policies

Our brokers work independently from providers and can help compare group life assurance policies across the UK market. They’ll aim to understand the unique makeup of your business and find the most relevant policies at the most competitive prices. Whether you’re ready to make a purchase or have questions, please provide us with some basic information to get started.