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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 made a commitment to share all of our knowledge for free and started this journey releasing our Group Critical Illness: Frequently Asked Questions’ post.

Today is time for us to 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 benefit 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.

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

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 we answer some of the most common questions we have dealt with recently and some of the most common questions employers ask us.

What is Group Life Insurance?

Group Life Insurance is more commonly known as Employee Life Insurance, Business Life Assurance and Death in Service insurance. It provides a lump sum payment to a nominated beneficiary chosen by your employees, 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, which is incorrect. Group Life Insurance will pay out in the event of your employees’ death whether working at the time or not.

The most common claim for Group Life insurance is cancer and deaths that occurred due to an accident at work are very rare.

Is Group Life Insurance Compulsory for Employers

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

However, as an Employee Benefits expert, 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 a policy in place.

If an employer decides to remove group life insurance (due to financial difficulties etc.) it can understandable be a tricky to manage with employees, especially, if this benefit has been agreed as part of their employment contract.

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 benefit, 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 x2 their salary in benefit and one of the employees is on £25,000 salary, then 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 be covered for £25,000 (the amount of the free cover limit provided automatically), but 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, benefiting them for a 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.

Voluntary employee life insurance is seen as a poor risk, as insurers assume, 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 (with an extra cost applied) except from countries where travel is advised against by the FCO (foreign and commonwealth office).

If your staff are travelling to locations for business, where travel is advised against by the FCO, it will be excluded under the policy, or terms not offered if regular travel to dangerous regions etc.

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 direct from them and not via a broker.

Main reason is insurers are unable to provide advice or a recommendation, unlike employee benefits brokers, so certain areas of the risk may be overlooked.

It also limits the clients chances 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 company take to pay my claim?

It depends what insurance company you have taken your policy with as certain insurers have an online death register which will means no death certificate is provided, speeding up the process significantly.

Most insurers will have the claim paid with five working days, it should only take longer for complication cases e.g. Death overseas, body repatriation, issues with T&C’s/eligibility. etc.

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 appoints the trustees of the trust to keep up to date with legal requirements such as HMRC reports etc.

What is a Catastrophic event limit?

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

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

Businesses based in EC post codes will usually have a cap placed on the cover provided due to the saturated risk in that area.

Ensure your broker/independent financial adviser doesn’t allow your scheme to be under insured.

One option we are seeing become 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 age the termination age is set 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 would have been chosen on the policy inception.

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

How much does death in service insurance cost?

Underwriters will calculate the cost of the scheme after reviewing (for all employee’s)… occupations, location, claims history, company scheme history (number of joiners/leavers over five years), medical underwriting history , current long-term absentees, overseas travel and catastrophic event limit requirements.

In our Group Life Insurance: The Good, The Bad and The Pricing guide, we confirmed the average price per employee is £115 but this can vary considerably from company to company.

Are there any standard exclusions?

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

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&C’s 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, employer’s salary and eligibility requirements.

Some schemes will have a set multiple of salary in place where 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 out?

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.

It is fortunate that we rarely hear of claims being declined.

What companies offer Group Life Insurance?

Companies under 100 employees, will tend to use insurers that have online quote facilities (as your premium will usually be cheaper), these are Canada Life, Unum, AIG, Aviva 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 (we recommend Hooray Health & Protection…of course) and not just a financial adviser picking up your scheme off the back of your pension… or worse a broker with bad reviews.

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.

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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