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What is Employer Paid Life Insurance?

What Is Employer Paid Life Insurance?

As more and more businesses invest in employer-paid insurances to attract and retain the best staff, we are seeing a parallel increase in confusion around what these actually are.

Searching ‘Employer Paid Life Insurance’ on Google does not provide an overview of all the policies available, due to the wide range of insurance products out there.

To clear up this confusion, here is a simple overview to help business owners understand what the policies cover, as well as how they can help grow your business.

What is Employer Paid Life Insurance?

‘Employer Paid Life Insurance’ is not a product in its own right, but a term used to describe any type of life insurance that is paid for by the employer. The two main types of Employer Paid Life Insurance are:

Employee Life Insurance: Provides a lump sum payment to your employees’ loved ones if they die whilst employed at the company.

Key Person Insurance: Protects your company against the death of a key worker by providing compensation to the business if they become unable to work due to illness, injury or death.

How Does Employer Life Insurance Work?

Both policies are owned by the business and the company is responsible for paying the annual premiums to the insurance companies.

The main difference is that Key Person Insurance payments are made to support the business, whereas Employee Life Insurance payments are made to the employees’ family/loved ones for financial support.

Pricing for Key Person Insurance is completed on an individual basis, so they will consider lifestyle and health factors (such as whether the individual smokes). Employee Life Insurance, on the other hand, is priced on a group basis so insurers will not request this information.

Are Employer Paid Life Insurance Premiums Taxable?

Group Life Insurance and Key Person Insurance premiums are usually classed as a claimable business expense against corporation tax relief.

We are not tax advisors, however, so we always advise our clients to check with their accountants to ensure they can claim the premiums as a tax-deductible.

Are Employer Paid Life Insurance Claims Taxable?

As the two insurances are quite different, with one benefiting the employee and the other benefiting the business, the taxation is also different.

Key Person Insurance is purchased by the company to protect the key employees, so any payments are made to the business account and the sum received will usually be treated as a trading receipt (meaning it will be taxed).

Claim payments made from Employee Life Insurance provides a tax-free lump sum payment for the employee’s family if it is not more than the employees tax-free lifetime allowance which for 2020-2021 is £1,073,100.

The majority of the UK SME’s we work with would fall under this allowance, but businesses with employees that breach this allowance might benefit from an Excepted Group Life Policy or a Single Life Relevant Policy.

It is important to understand that every business has its own unique set up. Hooray Health & Protection would always suggest speaking to your accountant or a tax expert before making any decisions.

Can Employees Fund Employer Paid Life Cover?

Key Person Insurance must be 100% funded by the company because the business is the beneficiary of the policy.

Employee Life Insurance is typically funded by the company for approximately 99% of the cover provided in the UK but there are options for voluntary benefits to be employee funded.

Voluntary benefits are usually significantly more expensive due to the self-selection aspect of employees being able to choose as and when they require cover.

Employer Paid Life Insurance Quote Comparison

If you’re a business owner and you are considering implementing one of the ‘Employer Paid Benefits’, we can help you shop around for the perfect deal.

Hooray Health & Protection charge no fee, so the price will be the same as you would receive directly from the insurance company. We also have access to the whole market, including companies that do not sell directly to clients.

If you would like any additional information or a free price comparison service, please call 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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