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Strengthen Your Company’s Benefits with Staff Life Insurance
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Employee life insurance is a type of life cover that you can offer your staff as part of a wider benefits package. In practice, this usually means either a Group Life Insurance scheme covering several employees, or a Relevant Life policy covering one individual employee or director. If an insured employee dies, a lump sum is paid out, usually through a discretionary trust, to help support their family with costs such as mortgage or rent payments, childcare and outstanding debt, with the trustees deciding who receives the benefit while taking the employee’s wishes into account.
It’s worth being clear about one distinction from the outset: employee life insurance covers any eligible member of staff, whereas key employee life insurance usually refers to insuring one specific person, such as a director or top-performing salesperson, whose loss would have a significant financial impact on the business itself. The key difference is who benefits: employee life insurance pays out to support the employee’s own family, whereas Key Person Insurance pays out to the business itself to help offset the financial impact of losing that person. If you’re looking to protect the business against the loss of a particular individual, our Key Person Insurance page explains how that type of cover works.
There are several types of life insurance available as part of a wider employee benefits life insurance package, most commonly structured as either Group Life Insurance or Relevant Life Insurance. Take a look at our product pages to see which structure suits your team best.
Unlike some other types of life insurance, the employer pays the premiums. With an employee group life insurance scheme, should an insured employee die while employed by you, the insurer pays the lump sum into the scheme’s trust, and the trustees, not the insurer directly, decide who receives the benefit, usually a spouse, partner or children, taking the employee’s wishes into account.
Employees stay covered as long as they’re employed by you and meet the eligibility criteria. Cover will normally end when the employee leaves the business, although they may be able to arrange separate personal cover, for example by approaching an employee life insurance company or broker directly, if they want cover to continue.
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As a life insurance employee benefit, this type of cover provides a lump sum if an employee dies while still employed by your organisation, with the amount depending on how much cover you’ve arranged. The benefit is usually paid through a discretionary trust, with the trustees deciding who receives it and taking the employee’s wishes into account. In most cases, the benefit is set as a multiple of salary, such as two or four times annual pay, though some smaller schemes use a flat-rate death benefit instead. For example, an employee earning £60,000 a year might see a payout of around £120,000.
The benefit is usually placed in a discretionary trust, so it can generally sit outside the employee’s estate for Inheritance Tax purposes, with the trustees responsible for deciding who receives it. As the employer, you or your scheme administrator will normally need to notify the insurer when a claim arises, while the trustees handle the decision of who the benefit is paid to.
Employee life insurance doesn’t cover critical illness, long-term sickness or disability, though separate policies can be arranged for these. As a default, this type of cover doesn’t automatically continue after an employee’s employment ends, unless you’ve chosen a continuation option or the employee arranges separate personal cover privately.
Exclusions vary from policy to policy and shouldn’t be assumed to be standard across the market, but may include things like drug or alcohol misuse, certain hazardous hobbies or sports, and criminal activity, depending on the insurer and scheme. Cover for suicide may also be excluded, depending on the policy.
Offering employee life insurance brings real value to both your business and your team. As an employee life insurance benefit, it demonstrates a genuine commitment to staff wellbeing and reassures employees that their families would be financially supported if the unexpected happened. When people feel valued and protected, they’re more likely to stay engaged, loyal and committed to your organisation.
Premiums are typically a tax-deductible expense for businesses, and benefits placed in trust can generally sit outside the beneficiary’s estate for Inheritance Tax purposes. For larger teams, it’s often more cost-effective to arrange cover as a group life insurance employee benefit rather than insuring each member of staff individually – sometimes referred to as group term life insurance employee benefits in other markets, though in the UK this type of cover is usually just called group life insurance or a death-in-service benefit. Group schemes often provide cover up to a ‘free cover limit’ without requiring individual medical underwriting for each employee. A Relevant Life policy is worth considering for senior individuals who sit outside a group scheme – it can offer similar tax advantages without triggering a P11D benefit in kind charge, though it’s usually individually underwritten rather than benefiting from a free cover limit.
While it isn’t a mandatory benefit, employee life insurance is a strong option for most organisations. The lump sum, which generally sits outside the estate for Inheritance Tax purposes when paid through a trust, can help beneficiaries with funeral costs, mortgage payments or ongoing living expenses, providing real financial support at a difficult time.
It can also help attract talent and support staff retention. It’s typically a low-cost benefit with high perceived value, often working out cheaper than many other perks while still offering something staff genuinely appreciate, and comparing schemes carefully is the best way to find the best employee life insurance for your organisation.
Employee life insurance cost depends on several factors, including the age and typical salary levels of your employees. Older employees generally carry higher risk, so premiums may be higher if your workforce skews towards those over 50 or 60. Some industries, such as construction or engineering, are considered higher risk and can push premiums up further.
Policies are usually based on a multiple of salary, such as two or four times annual earnings, so the higher the multiple or the overall salary total, the more the premium tends to cost. It’s worth comparing quotes from several insurers before deciding, since pricing and the detail of what’s covered can vary more than you might expect.
To find out which structure suits your business, get in touch and one of our advisers will talk you through the options. As a broker rather than an insurer, we can compare employee life insurance UK options across the market and help you find the most suitable life insurance for employee benefits in one place. Simply complete our straightforward form and we’ll be in touch.
Alongside employee life insurance, we can also help with cover for other areas of your business, from private health insurance and business loan protection to shareholder protection and director insurance.
3 Simple Steps.
Submit the details of the key member of staff
We then compare the quotes for you.
Submit application to underwriting.
What people are saying about us.
Jody was very helpful in explaining the options and I thoroughly recommend his company
We received a wonderful service from mykeyman and will be using them again. The service and product knowledge from team is excellent. Everything was made easy to understand. The price was the most suitable we found too.
The standard of service was first class. They kept me up to date with progress on my Relevant Life Policy, followed up promptly following delays caused by my medical practice being slow in compiling reports, and responded instantly and clearly to any questions I had.
Jody was very helpful in explaining the options and I thoroughly recommend his company
The standard of service was first class. They kept me up to date with progress on my Relevant Life Policy, followed up promptly following delays caused by my medical practice being slow in compiling reports, and responded instantly and clearly to any questions I had.
We received a wonderful service from mykeyman and will be using them again. The service and product knowledge from team is excellent. Everything was made easy to understand. The price was the most suitable we found too.
Jody was very helpful in explaining the options and I thoroughly recommend his company
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It depends on factors such as the size of your business, the number of employees, and the level of cover you want. Larger businesses typically benefit from group life insurance schemes, since premiums usually work out lower than equivalent individual policies.
Full-time and part-time workers who are UK residents are typically eligible for employee life insurance. Most policies set an age limit, often between 16 and 70, or up to state pension age.
If an employee leaves your business, their cover usually ends automatically, unless you’ve arranged a specific continuation option with your provider in advance, though the employee may be able to arrange separate personal cover if they wish to continue protection.
As the employer or scheme administrator, you’ll normally need to notify the insurer as soon as possible following an employee’s death. If the policy is set up with a discretionary trust, which is standard for group schemes, the trustees decide who the payout should go to, which generally keeps the benefit outside the estate for Inheritance Tax purposes.
Employee life insurance covers any eligible member of staff and typically forms part of a wider benefits package, with any payout benefiting the employee’s own family. Key employee life insurance protects the business itself by insuring one particular individual, often a director or senior employee, whose death or serious illness would cause significant financial disruption to the company, with any payout going to the business rather than the family.
They’re closely related but not identical. Group life insurance is the name for a scheme that covers a group of staff under one policy, rather than insuring each person individually. In most cases, when people talk about employee life insurance for a whole team, they mean group life insurance.
