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Group Life Insurance for Employers: Frequently Asked Questions

Group Life Insurance For Employers: Frequently Asked Questions

When launching our Knowledge Hub, we committed to sharing all of our knowledge to help make insurance advice less complicated and more accessible.

The first piece in this journey was our post: ‘Group Critical Illness: Frequently Asked Questions’.

Today, we continue the series with ‘Group Life Insurance for Employers: Frequently Asked Questions’, based on the conversations we’ve been having with our clients this week.

Group Life Insurance is the most commonly taken up employee benefits insurance in the UK with 49,820 schemes as of the start of 2019.

This number is shockingly low considering there are approximately 1.3 million businesses with employees in the UK and we are facing a £2.4 trillion protection gap.

Here at Hooray Health & Protection, we understand one of the main reasons that employers aren’t taking this benefit is due to high broker fees and lack of free knowledge available to employers.

To combat this, we want to ensure we are providing employers, finance directors and HR staff the knowledge they need to decide if the cover is right for their company.

So, below are our answers to some of the most common questions we have dealt with recently, and the questions employers often ask us.

What is Group Life Insurance?

You might hear Group Life Insurance called Employee Life Insurance, Business Life Assurance or Death in Service insurance, but it all means the same thing.

It provides a lump-sum payment to a nominated beneficiary (chosen by the employee) if they are to pass away whilst covered under the scheme.

Do employee’s covered on the scheme have to pass away at work for an eligible claim?

Many employers we speak to believe the policy only covers workplace death, but this is incorrect. Group Life Insurance will pay out in the event of your employees’ death whether they were working at the time or not.

Deaths that occurred due to an accident at work are actually very rare, and the most common claim is cancer.

Is Group Life Insurance Compulsory for Employers

Group Life Insurance is not a compulsory benefit – it is the employer’s decision if they want to provide this benefit.

However, as Employee Benefits experts, we always talk with our clients about the long-term implications of agreeing to Group Life Insurance.

When employers have agreed to provide life insurance as part of their staff’s employment contract, they will certainly be contractually liable for any claim payments – even without a policy in place.

If an employer decides to remove Group Life Insurance (due to financial difficulties, for example), it can be tricky to manage employee contracts if this benefit was agreed as part of it.

When choosing the right policy for your company, all these factors need to be considered.

What is a Free Cover Limit?

When a new Group Life Insurance policy is arranged, the underwriter will agree a ‘free cover limit’. This is the total amount of benefits that members of the policy can receive without answering any questions about their medical history.

So, for example, if the Group Life policy provides all employees with double their salary in benefits and one of the employees is on £25,000 salary, their next of kin would be entitled to £50,000 in payment.

If the free cover limit was £75,000, the same employee would be covered for their full benefit amount as it’s £25,000 under the limit.

However, if the free cover limit was £25,000, the employee would only be covered for £25,000 – which is the amount of free cover limit provided automatically. If they wanted the additional £25,000, they would need to complete a questionnaire disclosing their medical history.

Is Group Life Cover employer funded or do employees pay?

Group Life Insurance is funded by the employer, so employers can usually claim the premiums as a business expense, making them eligible for relief against corporation tax…Hooray!

You can find voluntary Employee Life Insurance schemes; however, these are rare and are usually very expensive as insurance companies see them as a poor risk – meaning they feel likely to have to pay out.

Voluntary employee life insurance is seen as poor risk because insurers assume that people will re-enter the scheme when they have a health scare and perhaps pick and choose when they need cover (unlike normal schemes were the membership is mandatory).

Will Death in Service Insurance Cover my employees during work and holiday’s overseas?

When arranging a Group Life scheme, all overseas business travel must be disclosed. Insurers will then usually cover any business travel (except to countries where travel is advised against by the FCO (Foreign and Commonwealth Office) for an additional fee.

If your staff are travelling for business to locations that are advised against travelling to by the FCO, it will be excluded under the policy. Alternatively, some benefits will be excluded if there is regular travel to a dangerous or unadvised region.

Any travel your staff make for holidays is automatically covered, even when travelling against FCO advice.

Why should I use a broker for Group Life Insurance?

In the UK, there are only one or two insurers who will allow businesses to buy policies directly from them and not via a broker.

The main reason for this is that insurers are unable to provide advice or recommendations, whereas employee benefits brokers can, so certain areas of the risk may be overlooked without a broker.

It also limits the client’s chance of getting the best price, as the insurer will only provide a quote from their underwriters, excluding the other eight insurers in the market.

How long will Group Life Insurance companies take to pay my claim?

It depends on which insurance company you have taken your policy with. Certain insurers have an online death register, which means no death certificate must be submitted – speeding up the process significantly.

Most insurers will have the claim paid with five working days. The only reason it would take longer would be for a complicated case, for example, death overseas, body repatriation or issues with T&Cs or eligibility.

What is a Master Trust?

Master trusts are a single trust, available for registered Group Life schemes, which are managed by trustees appointed by the group life insurer.

It is designed to reduce the cost of arranging a trust, remove administration for employers and it appoints trustees to keep up to date with legal requirements such as HMRC reports.

What is a Catastrophic event limit?

Underwriters will apply a catastrophic event limit to all Group Life Insurances, which will be based on the location of the company being insured.

In the case of a catastrophe (such as a terrorist attack or earthquake), the limit applied is the maximum amount that will be paid to the insured employees.

In the UK, businesses based in EC postcodes (in London) will usually have a cap placed on their available cover, due to the saturated risk in that area.

Ensure your broker or independent financial adviser doesn’t allow your scheme to be underinsured.

Nowadays, it is becoming more and more common is split insurance (splitting the policy between numerous insurers) to ensure the full cover is provided.

How long am I covered for under my Group Life Insurance?

It depends on what the termination age is set to, but, usually, this will be ‘state pension age’.

Some insurers will allow companies to cover their staff up to 75.

If an employee goes off sick, they will still be covered, but if they leave the company their policy will cease.

Does Group Life Insurance have cash in value?

Unfortunately, there is no cash in value for Group Life Insurance no matter how long the policy has been in place.

What happens to Group Life Insurance if an employee leaves their job?

If an employee voluntarily leaves a company, then cover will cease on the last day of their employment contract.

In cases of redundancy, several insurers apply redundancy cover up to 24 months, which can be chosen when the policy is arranged.

There is no option for continuation of cover for Group Life schemes once an employer has left the business.

How much does death in service insurance cost?

There isn’t a simple answer to this, as the price of your premiums will vary from business to business. Underwriters will calculate the cost of the scheme after reviewing the following for all employees:

  • Occupations
  • Location
  • Claims history
  • Company scheme history (number of joiners/leavers over five years)
  • Medical underwriting history
  • Current long-term absentees
  • Overseas travel
  • Catastrophic event limit requirements.

Are there any standard exclusions?

Unlike with individual Life Insurance policies, Group Life Insurance has very few exclusions.

The majority of exclusions are linked to overseas travel against FCO advice, eligibility for new joiners and keeping the scheme open to new entrants.

It is not a one size fits all approach and different T&Cs will apply depending on the number of employees covered under the policy.

How much does Group Life insurance pay to the employees covered?

It depends on the level of cover set when the scheme was established, the employer’s salary and eligibility requirements.

Some schemes will have a clause in place stating that the insured amount will be a multiple of the employee’s salary.

In other cases, some schemes will have a fixed benefit amount per employee.

Are all Group Life Insurance claims paid?

Most Group Life Insurance companies have a 99% claims acceptance rating due to the lack of exclusions on the policy.

We only hear of claims being declined due to issues with eligibility, exclusions that haven’t been properly explained or fraudulent cases.

We are happy to rarely hear of claims being declined.

Which companies offer Group Life Insurance?

Companies with under 100 employees will tend to use insurers that have online quote facilities (as your premium will usually be cheaper). These are AIG, Aviva, Canada Life, Unum and new insurer Yulife.

If a business is looking to go to whole of market then MetLife, Zurich and Generali will also be included as they are three of the world’s biggest insurers.

Smaller insurers, such as Risk Asset Management and Lutine, are not often included unless is an unusual risk or the rest of the market have declined to quote.

How can I take out Life Insurance for my employees?

Find yourself a good Employee Benefits Broker that knows what they are doing and has great reviews (such as Hooray Health & Protection!). A specialised broker is a far better option than a financial adviser, who will likely pick up your scheme off the back of your pension.

It’s always worth asking for quotes from more than one broker to ensure you’re getting the best service, at the best price possible.

Finally, never use a broker who charges you for a quote, as you should only be charged when proceeding with a policy.

We will never charge you a fee for a review here at Hooray, because we earn a commission from the insurers. We will also get you the same price that you would have gotten from going direct – but with more options and personalised advice!

Any other questions?

We will continue to update this blog and when we receive more Group Life Insurance questions but for anything we’ve missed, please contact us on 01273 222805 or email [email protected].

Charlie Cousins

Founder and Director of Hooray Health & Protection, Charlie Cousins has enjoyed a career in the insurance and financial services industry spanning over the last ten years.

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