A Simple Guide to Employer-Provided Life Insurance

Your employer may offer group life insurance as part of your employee benefits package. This cover protects a group of people including your coworkers and offers your loved ones financial security should you pass away while working for the company.

An employer-sponsored life policy is often inexpensive as premiums are generally paid for in part or full by your employer. However, these plans are not easily customisable while the benefits may also be limited depending on your needs and lifestyle.

In this quick guide, we explain everything you need to know about this life insurance type. Here’s what you will find inside the post regarding this cover:

• What it is
• Features
• Advantages
• Disadvantages

Let’s get started!

What is employer-provided life insurance?

This is a life insurance plan provided by your employer to give your beneficiaries support in case you pass on while employed. Your employer pays full or part of the monthly premiums.

It’s also known as group life insurance or death in service benefit.

Features of employer-provided insurance

Who qualifies?

Most employers demand all or some of the following requirements to benefit from the cover:

• You are an active employee, otherwise coverage ceases the moment you stop working for your employer.
• You are eligible to work in the UK and possess a UK working contract.
• You’ve attained the policy’s minimum and maximum entry ages.

The extent of legal control

Employee-provided life insurance is an optional benefit. This means the employer is not legally mandated to provide the cover. 

Benefits’ boundary

Employer-provided insurance is a business expense. The employer funds it. Employees don’t pay a premium and are qualified for relief against corporation tax.

It covers business travels including overseas countries, except countries that the Foreign, Commonwealth and Development Office (FCDO) advises against. 

Number of employees eligible

To keep costs low and take advantage of economies of scale, most companies apply for this cover once the workforce is substantial enough, usually 100+ employees. However, that shouldn’t stop small businesses with fewer employees to apply for the cover.

Is it limited to the workplace?

The policy covers the employee regardless of whether they passed on while at the workplace or not.

Benefits of employer-provided insurance

Peace of mind

Employer-provided insurance relieves employees of fear of their family suffering after their passing on. The lump sum amount paid out to them by the insurer can help your family to settle financial obligations such as mortgages and daily expenses.

Freedom of choice

The cover presents an employee with two options. The employee’s family can receive a lump sum. The one-time massive monetary injection enables them to settle long-term goals and pressures. For example, your family can decide to start a business or clear university fees at once.

The second option is the pension route. The policy’s benefits can support your beneficiaries with everyday needs for a while.

Tax benefits

The premiums paid for this cover are treated as a business expense hence untaxed by the HMRC. This lowers the operating costs of the business.

Also as an employee, HMRC does not tax you for the lump sum payable to your beneficiary. The relief from inheritance tax means your loved ones get paid the money in a timely manner and tax free.

Hassle-free to get covered

Employer-sponsored insurance is easy to acquire because most policy providers do not require medical underwriting for this type of cover.

Attract and maintain the best talent

Most employers use employer-provided insurance to attract the best talents for their companies. The employees feel loved and cared for whenever an employer covers their health and guarantees their families’ financial benefits in the long-term.

The policy also helps companies to retain their best workers for longer. The cover is likely to reduce employee stress and work absenteeism while promoting their engagement in company success.

Are there any drawbacks for taking out group life cover?

The fact that employer-provided insurance is often provided to you freely means it has very few disadvantages. Perhaps the only notable drawback is that it may not always be enough for your family needs. This is why you need to supplement it with a policy of your own to cover additional aspects of your life.

Conclusion

Employer-provided insurance motivates employees to work towards helping a business achieve its goals without fear, stress or frequent absenteeism. It also reduces the business’s operating costs because HMRC does not tax the cover.

On the other hand, the employee’s family enjoys more peace of mind. This is because they can rest knowing that the policy will pay for their bills for some time in the event the breadwinner passes on.

What else would you like to know about this insurance policy? We’d like to hear your feedback in the comments below.