How does group life insurance compare to individual life insurance?
Group life insurance is a fairly common employee benefit. And has been for a while. Much like individual life insurance, it provides a lump sum when someone dies. With a group policy, if an employee dies, that lump sum benefit would go to the employee’s beneficiary. Sometimes the benefit can be paid as a pension, but it’s down to how the employer has set up the cover.
Life insurance is life insurance, right?
Well, pretty much. The basic benefit is similar to an individual life insurance policy, but there are some additional differences to take note of.
Similarities
- If you die, a lump sum or pension benefit will be paid to your beneficiaries. The core purpose of the insurance is the same.
- You are covered, regardless of the cause of death. Under a group life policy there are normally no exclusions. You don’t have to be at work to be covered, as long as you’re employed by the company. For example if you’re on maternity/paternity leave you’d still be protected. Some individual policies do have exclusions in place, such as suicide, for a specified period.
Differences
- Cover is linked to your employment, if you leave the company the cover stops. Cover also stops when you reach the maximum age, normally State Pension age or 75, depending on what your employer has chosen.
- You’ll normally be covered automatically, with no medical questions. Unless you join outside of the normal rules of the scheme, or have a large insured benefit, most employees are covered without needing to answer any medical questions.
- The level of cover is linked to your salary and cannot normally be changed. Unless your employer provides a flexible benefits scheme where you can flex your cover up and down, you can’t change the level of cover. The most common benefit is four times your annual salary, so as your salary changes your benefit will change, but you can’t otherwise change the level of benefit.
- Your employer pays the premium not you.They’ll also handle all the admin, letting the insurance company know you’ve joined the scheme, or if any of your details change, including your salary.
- Your employer is the policyholder not you.That means they will make a claim on your family’s behalf and talk to us to arrange payment.
- The policy is held in a discretionary trust so it doesn’t form part of your estate. This means it is not subject to inheritance tax on the benefit. Not all individual policies are set up in trust, whereas group life insurance is always set up in a trust.
If you’re unsure of the employee benefits you have available to you, speak to your employer for more information.
Get more information
If you’d like more information please speak to your employer or HR team.
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