Group life insurance

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Page written by Chris Godfrey. Last reviewed on September 21, 2024. Next review due April 6, 2025.

In an uncertain world, it makes sense for most of us to have life insurance to provide a cash benefit to our family or dependants in the event that we should die. Unfortunately, for many people, buying life insurance individually can be too expensive and pre-existing medical conditions may mean they cannot secure cover. However, group life insurance is a blanket policy that employers can offer to their workforce to eliminate these issues. Protect your employees with generous cover to boost workforce morale, reduce employee attrition, support recruitment and make your business a better place to work.

Read on to learn more about this affordable and top-rated employee perk.

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What is group life insurance?

Group life insurance is a type of business insurance, also known as a ‘death in service benefit’, that employers may offer to their workers whilst they work for the organisation. The insurance will pay a tax-free lump sum to the family or next of kin of an employee if they die whilst covered by the policy. The sum paid may be a fixed amount but is usually based on a multiple of the employee’s salary. The employer is responsible for paying the premium, not the employees.

Providing life insurance to your workers as an employee benefit can give staff peace of mind knowing that their family and dependants may receive a generous pay out if something happened to them. This can boost employee morale and provide a strong sense of well-being, especially if your employees could not afford to buy cover individually.

Why buy group life insurance for your employees

It’s an affordable and tax-deductible benefit
Life insurance is rated as a top employee perk by workers
It can support your employer value proposition (EVP) making your business a more attractive place to work than your competitors
It can increase worker retention rates, reducing your recruitment costs and the risk of losing important employees
It demonstrates a strong duty of care
It’s easy to set up – no employee medical information or exams are usually required

What does group life insurance cover?

Most leading group life insurance policies will cover:

A lump sum payment in the event of an employee’s death by almost any cause including many pre-existing medical conditions
Choice of fixed sum or multiple salary payouts
Access to bereavement counselling
Financial advice for the benefit recipients
Optional ‘death in service pension’ (DISP) for the deceased’s spouse, partner, dependents or children – see more below

How much does group life insurance cost?

Group life insurance policies are tailored to the business that purchases the policy, and the premium you pay will be determined by several factors, including:

The level of cover – group life insurance policies usually pay out lump sums based on a multiple of employee salaries – for example, 2, 3, or 4 x salary at the time of the insured employee’s death. The higher the multiple, the higher the insurance premium.
Policy cease age – this is the age an employee will be when the policy stops covering them. Typically, this is 65, but employers can choose to set this as high as 75. A higher age usually means higher premiums.
Group size – although you will pay for every employee you cover, most insurers will offer a premium discount for insuring larger groups.
Age of your workforce – older employees have an increased risk of dying and triggering a claim. Older workers will drive a higher premium.
Business location – life expectancy varies by region across the UK. Some areas will drive lower premiums than others.

What are the types of group life insurance?

There are three main types of group life insurance policy:

Registered policies

Registered policies are the most popular type of group life insurance policy. These must be registered with HMRC and, if an insured employee dies, any payout will count towards their pension lifetime allowance, which is currently set at £1,073,100 for the 2023/24 tax year. However, the lifetime allowance will be abolished in April 2024 and no limit will then apply.

Excepted policies

Excepted policy payouts do not count towards an employee’s lifetime allowance. However, they are subject to complicated trust rules, which increase the amount and cost of administration as well as the risk of a tax charge.

Death in service pensions or DISP

Once known as a Spouse’s or Widow’s Pension, a Death in Service Pension (DISP) will provide a pay out to the next of kin of the deceased employee with regular payments in the form of an ongoing pension.

The terms and conditions of Death in Service Pensions can vary significantly, for example, if children are included as financial dependants, the part of the pension paid to them may stop at a specific point – such as when they turn 21 or leave full time education. DISP policies are gradually being phased out, with most employers now choosing a lump sum or salary-multiplier type of plan.

What are the benefits levels with a group life insurance policy?

The amount of life insurance cover provided to an employee is usually a multiple of their salary, for example 4 x salary, or a fixed lump sum, such as £100,000.

Although employers purchase group life insurance policy coverage through an insurance provider on a wholesale basis for their employees, companies can still customise pay-out benefits across their workforce. For example, some businesses may choose to provide new employees with a fixed sum but offer their long-standing employees a more generous multiple of salary.

Group life insurance can also be offered as a flexible benefit, meaning the employer provides a base benefit, perhaps 1 or 2 x salary, and then allows employees to take out additional cover if they want to buy it. This type of flexible approach can give workers the choice of where their money goes. Do they want to give up part of their salary to buy extra cover, or would they prefer to keep all of their income and just go with the base benefit? The option of a higher benefit level may appeal to employees with partners or children, but the prospect of a larger payout may not be attractive for younger workers and those who do not have a family to financially support.

How do I arrange a policy?

Arranging a group life insurance is a simple proposition but employers should consider some important points when setting up their scheme:

Cover can go up to age 75 and insurers will require employee details such as age, occupation and salary to provide a quote. The higher the age bracket you choose, and the older your workforce is, the higher your premium will be.
There is usually no need for your employees to provide their personal medical information or undergo a medical exam, and most pre-existing medical conditions will be accepted. Insurers will typically offer generous free cover limits, (this is the base level of benefit that employees will receive without paying extra for their cover), sometimes £1million or more. Only employees requiring higher levels of group life insurance benefits will usually need to provide medical information.
The principal employer must be a UK-based business to offer a group life insurance scheme.
Just as no two businesses are the same, so no two group life insurance policies are the same. Because every organisation will need a policy that’s customised to fit their operation it makes sense to compare different offerings from different insurers before making any purchase.

How Swoop can help

Keeping your workforce motivated and happy is key to business success. Don’t let the death of an employee cause hardship to their dependants and impact your workforce morale. Register with Swoop today to compare top-quality group life insurance policies from a range of insurers and to discuss all your business insurance needs.

Written by

Chris Godfrey

Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.

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