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What is Employer Paid Life Insurance?

What Is Employer Paid Life Insurance?

More and more businesses in the UK are turning to ‘Employer Paid Insurances’ to attract and retain the best staff. We are however seeing a trend of confusion among business owners when arranging these policies.

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

Hooray Health & Protection have provided this article to help business owners understand what the policies cover and how they can help grow your business.

What is Employer Paid Life Insurance?

There is no insurance product called ‘Employer Paid Life Insurance’ it is just a term which is used to describe two different business life insurances which are paid by the employer.

Employee Life Insurance: Provides a lump sum payment to your employees loved ones in the event of the employee’s death whilst employed at the company. 

Key Person Insurance: Protects a company against the death of their key workers by providing a lump sum payment to the business in the event of their death.

Some other brokers may include ‘Relevant Life Insurance’ but we feel as it’s ‘Employer Paid Life Policy’ the above options would be sufficient and are seeing too many brokers selling multiple relevant life policies to businesses instead of reviewing ‘Employee Life’ which is considerably cheaper.

How Does Employer Life Insurance Work?

Both policies are owned by the business and the company are liable for the annual premiums payable to the insurance companies.

Main difference would be Key Person Insurance claims payments are made to the business to support the business, whereas Employee Life Insurance the payments are made to the employees’ family/loved ones for financial support.

Pricing for Key Person Insurance is completed on an individual basis also so they will consider smoking, lifestyle and historic health conditions, unlike Employee Life Insurance which is priced on a group basis so 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 always advise our clients to check with their accountants to ensure they can claim the premiums as a tax deductible due to the different business structures in the UK.

Are Employer Paid Life Insurance Claims Taxable?

Always remember as the two insurances are quite different with one benefiting the employee and the other the business- the taxation is going to be different also.

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 for businesses who have employees that breach this allowance, they can benefit from an Excepted Group Life Policy or a Single Life Relevant Policy. 

Hooray Health & Protection are an insurance broker and know every business has its own unique set up. We 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 which can 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 considering implementing one of the ‘Employer Paid Benefits’ we would always suggest getting quotes from an insurance broker as well as direct with an insurer.

Hooray Health & Protection charge no fee so the price will be the same as you would receive directly from the insurance company and we have access to the whole market as some insurance companies 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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