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Understanding group life assurance

Understanding group life assurance

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Group life assurance schemes are one of the most popular employee benefits provided by employers. A group life assurance scheme provides financial support to employees’ families and dependants, providing reassurance to the employee that their dependants will be looked after in the event of their death.  According to the Swiss Re Group Watch 2023 report, there was a 3.2% increase in the number of insured schemes in 2022.

As always, effective communication is vital. If you have an insured group life assurance scheme, there are some key points – specific to these schemes – which are necessary to communicate to employees:

  • A registered group life assurance scheme is subject to the pension tax rules.  On death, the employees’ DC savings (i.e. all pension pots) would be added to the life assurance benefit. If the combined value exceeds the lifetime allowance (LTA), there is a potential tax charge on the excess at the beneficiary’s marginal rate of tax.
  • Registered life assurance benefits are paid via a trust, and so remain outside the employee’s estate which may otherwise attract inheritance tax.
  • No extra tax is payable, as a group life assurance scheme is not a P11d benefit.  This is the case even if an employee has selected increased levels of cover though a flexible benefits scheme.
  • The group life assurance scheme is employer-funded. Some employees may be doubling up on cover and paying premiums through personal life insurance policies – for example, in connection to a mortgage.
  • It is vital to keep the expression of wishes form up to date, detailing the preferred beneficiaries of any life assurance benefit.  Most employees complete one on joining employment, but while personal circumstances may change thereafter, forms are not always updated to match.  It is important that this does remain current, as it provides trustees with clear indication of how benefits should be distributed in the event of death. Though they are not bound by this, it places a strong moral binding on those assigning benefits – and so is usually a significant component of decision-making.
  • Employees and their immediate family may have access to additional support services associated with company group life assurance policies, which are available cost free:
    • Probate services – helping employees and their families understand the process of obtaining a probate following a bereavement, and providing support on legal issues and requirements.
    • Bereavement counselling services – access to a 24/7 helpline and possible face-to-face or telephone counselling. This is designed to provide personal support to employees and families following the loss of a loved one.

Effective communications are key to ensuring employees have a clear understanding of how benefits are implemented.  In the case of group life assurance, this enables them to make decisions and take action not just for themselves, but the protection of their families and dependants.  It is also important to recognise how this feeds into wider employee wellbeing, not only providing financial security but demonstrating an employers’ commitment to a supportive workplace which values long-term security.