Why should employers buy group life insurance for their employees?

Young girl holding her parent's hand

Protecting the families of employees is important to paternal employers. We explore why more employers should be thinking about group life insurance.

Group life insurance [link to new GL page] is a popular employee benefit; commonly arranged to provide a lump sum payment to an employee’s family should they die while employed by the company. Also, for businesses thinking about expanding their employee benefits package, it is the perfect complement to a workplace pension, often the first building block.

Here are some of the most compelling reasons why employers should consider providing this benefit to their staff.

Attract the best talent

In a competitive employment market, companies of all sizes need to find ways to attract the best talent to their organisation and keep them there. Employee benefits are an excellent way to do this; by providing valuable benefits to employees at a low cost to the employer.

By buying benefits in bulk like this, the cost per employee is cheaper than if employees were to buy benefits themselves on the high street. They therefore attach a higher value to the benefit than it costs the employer to provide.

Group life insurance is seen as a foundation employee benefit, and is one of the most highly valued by employees. 20% of employees rate group life insurance in their top three employee benefits (AIG Life Group Protection research, 2018).

Most large companies already provide group life insurance to their staff. Yet despite the fact that SMEs need to compete with these companies to attract the best talent, only 19% of SMEs provide the benefit (AIG Life Group Protection research, 2018). This puts SMEs at a serious disadvantage as employees moving from a larger employer are likely to lose this valued workplace benefit.

Employee peace of mind

Money worries can be a distraction and source of stress to employees and this can impact on their focus at work. Research by MetLife, showed that one in three employees are distracted at work by financial concerns following death or disability (Health Insurance Daily, 2017). Benefits that provide financial security, such as group life insurance, can help to mitigate those worries and uncertainty and focus your employees on the job at hand. A focused employee is likely to be a productive employee. They are more likely to look favourably on their employer too for providing them with this security.

Doing the right thing

A death in the workplace, although of course unlikely, does happen from time to time. Employers should consider how they would deal with such a scenario and whether they feel an obligation to support the bereaved family. Although professional, the personal relationships built between colleagues are strong, especially in small businesses. With a group life insurance policy in place, employers are able to ensure the family are looked after and supported financially.

Some more reasons to consider group life insurance:
  • It’s cheap. The average cost of a £100,000 benefit is only £100 a year per employee. So for a small company with 5 staff, the insurance may only cost £500-£1,000 a year. The per employee cost is typically much lower than employees would pay if they bought it directly, so they value it higher than the actual cost to the employer.
  • It’s a natural complement to pension saving, and the ideal starter employee benefit. With all companies now required to set up a workplace pension, life insurance provides financial security pre-retirement when pension savings are small.
  • Additional support services, such as bereavement counselling are often available. Providing emotional support in addition to the core insurance, these services provide an important source of support, free of charge.
  • Employees do not need to answer any medical questions. As the insurance covers all employees in the organisation, or within a clearly defined group or management grade, in most cases individual employees do not need to complete medical questions.
  • It’s tax efficient. The premiums paid by the employer are not treated as a P11D benefit for employees, so there is no tax charge. The premium payment is considered a business expense for corporation tax purposes. Claim payments are paid to a discretionary trust, so there is no inheritance tax charge for employees. However, where excepted group life schemes are set up in a flexible and voluntary arrangement and the cover is paid for by the employee, premiums will be subject to income tax and national insurance contributions.
  • It’s simple to administer. Once set up, the employer only needs to provide routine membership data to the insurer a few times a year at most. With AIG Life Group Protection, all policies are administered online for additional convenience.

In a nutshell

Employee benefits are a great way to attract and retain the best staff. Group life insurance is one of the most popular and valued benefits. It is easy to set up and the cover is cheap to buy, so it makes for an ideal starter employee benefit. Most employees are covered automatically, claim payments are tax free and it’s simple to manage and administer the policy online (with AIG Life Group Protection that is).