Group life insurance for businesses with older employees

A group life insurance policy can cover all your employees and pays a lump sum to their chosen beneficiaries if they die while employed by you. Insurers calculate the lump sum based on a multiple of an employee's usual salary. The lump sum typically pays into a trust, meaning it goes straight to an employee's family when they die.

Group life insurance provides death-in-service benefits that benefit your employees and business. Clear communication is vital to ensure your staff understand what their employee benefits provide.

A financial safety net

A group life insurance policy pays a tax-free lump sum to an employee's loved ones, giving them money to use as they wish. They can pay off the mortgage, cover living expenses or fund funeral costs. Life insurance pays out whether they’re ill or in an accident, and the death doesn't have to be work-related. Some policies also pay out if an employee receives a terminal diagnosis.

Quick payment

A group life insurance lump sum payment typically pays into a discretionary trust, which means it doesn't form part of an employee's estate and isn't subject to inheritance tax or probate. It means the employee's family can receive the money quickly rather than waiting for the probate process.

Reduced costs for employees

Some employees may already have invested in individual life insurance but limited their coverage to fit their budget. Others may have decided against buying life insurance because it wasn't affordable. Providing group life insurance with your employee benefits gives them coverage, or additional cover, at no extra cost.

Making you an employer of choice

Providing your team with group life insurance shows them you're willing to invest in their family's financial protection even when they're no longer around. Life insurance is a highly valued employee benefit and can help you attract recruits.

Increased employee retention and engagement

We've mentioned the recruitment advantages, but investing in group life insurance can also help you retain staff and increase employee engagement. Financial protection and stability are more highly valued because of the cost-of-living crisis. By demonstrating your commitment to support an employee's loved ones, you help to create a positive company culture where staff feel valued and supported.

Older workers' needs and priorities inevitably vary depending on their circumstances. For some, group life insurance will be an essential lifeline, while for others, it will be a welcome bonus. Let's look at some factors that affect an older employee's need for group life insurance.

Family life and caring responsibilities

The average age of first-time parents has risen, meaning employees in their 50s are more likely to have dependent children living at home. Parents may also continue to provide financial support to children at university or as they buy their first home. Equally, your employees could be part of the sandwich generation, supporting their children while also caring for elderly parents.

In these circumstances, group life insurance can provide essential financial security.

Paying the mortgage

Older workers are more likely to own their home than their younger colleagues, making it harder for them to move if they struggle to pay the bills. Some older staff will have paid off their mortgage, while others continue to pay, depending on their mortgage term and how interest rate increases have affected their payments. Group life insurance can help all employees with living expenses, but may be especially important for homeowners.

Preparing for retirement

Group life insurance remains important for employees whose financial commitments have decreased over time and who are preparing for retirement. A payout from a group life insurance scheme is still valued as it may give their partner a more comfortable retirement, cover funeral expenses or enable them to leave a more generous legacy for their children or other family members.

Factors to consider when buying group life insurance for older workers include cost, the underwriting process, and how employees' circumstances affect their coverage.

How an older workforce affects your premium

The average age of your workforce will affect the premium you pay. The higher the average age, the higher the premium.

Why age affects your premium

Insurers base their policy quotes on the risk that an employee will make a claim. The likelihood of a claim increases with age, meaning life coverage costs more for older workers. For a group life insurance policy, your insurer can spread the risk across all employees, so they look at the average age. If your workforce includes mostly older workers with a handful of younger staff, the premium will be higher than if the numbers were reversed.

Age limits

Insurers place age limits on their group life insurance policies. Some only cover those over 18 and stop coverage at state pension age. Others provide cover to employees aged 16-75, allowing you to cover apprentices and staff retiring past state pension age. Always consider how likely employees are to keep working and whether you can extend their coverage to suit.

Changes in working patterns

Employers can no longer set a compulsory retirement age in most industries, allowing many employees to keep working longer if they can. They may enjoy their work, the social contact it provides or need to continue working for financial reasons. However, changes in working patterns affect life insurance coverage.

How retirement affects group life cover

Group life insurance covers people who are actively employed in your business. If an employee resigns or retires, their coverage ends. As mentioned, most policies have a maximum age limit, so coverage may end if an employee works past it. Always check the terms and conditions on your chosen policy and ensure staff are aware of the age limits.

Working past state pension age

Some policies cover employees until they reach 65, or state pension age, which is currently 67. Under the Equality Act, you can decide to end group life coverage for employees at that stage. However, if you have several staff who work past state pension age, ending their coverage requires careful consideration. It may be better to extend coverage to your insurance provider's maximum age.

Part-time work and phased retirement

Employees approaching retirement may prefer to take a phased approach. An immediate change from full-time employment to retirement can cause mental health challenges due to the loss of routine and social interaction. Gradually reducing working hours can help employees adjust.

In a group life insurance scheme, the insurer pays a fixed lump sum linked to salary, so part-time work means a lower payment.

Policy considerations

The terms and conditions that apply to your life insurance scheme affect coverage levels, cost and payments. Here are a few policy considerations to keep in mind.

The free cover limits and older employees

Group life insurance policies don't typically use medical underwriting. Instead, free cover limits set the amount of coverage your policy provides without an employee having to provide any medical information. Free cover limits vary depending on the multiple you choose and how many employees the policy covers.

Older employees may be long-serving and have higher salaries. A high multiple could also mean they exceed the free cover limit and need to supply medical information.

Long-term sick leave

Older employees are generally more likely to take long-term sick leave, which can put them at risk of redundancy if they're no longer fit for work. Ending their employment on medical grounds also means they lose their life insurance benefits, while they continue to access their employee benefits while on sick leave. If their illness progresses, that could mean leaving their loved ones without a financial safety net.

Always take advice from an employment lawyer before acting.

The terminal illness benefit

Many policies will pay out early if an employee is diagnosed with an illness and expected to live less than 12 months. Staying in touch with employees and ensuring they understand their insurance benefits helps them make informed decisions about how to use their coverage.

Keeping beneficiary nominations up to date

When an employee joins a group life insurance scheme, they'll complete a form confirming who will receive their payout. As their circumstances change, they may want to alter their nominated beneficiaries. Encourage staff to review their nomination forms regularly, especially after significant life events, to ensure their nominated beneficiaries still reflect their wishes.

Life events that prompt a beneficiary review

If an employee has paid off the mortgage or their children have become financially independent, they may want to change their nomination forms to reflect their new circumstances. Payments can be split between several people if necessary. Employees may want to provide for their partner or divide the payout to give their children their own money.

Aligning life insurance payouts with pension benefits

Some pension funds provide a lump sum or continuing income to a nominated beneficiary if the original holder has died. Your employees should therefore consider their pension and life insurance benefits together. Encourage your staff to seek advice from a financial adviser to understand the tax implications and make an informed choice.

Your group life insurance premium increases with the average age of your workforce, but there are other ways to keep coverage affordable.

Choose your multiple carefully

Your insurance provider bases the fixed lump sum on a multiple of an employee's earnings, typically paying 2-4 times their usual salary. The higher the multiple, the greater the cost. Choosing a lower multiple lets you offer cost-effective employee benefits your team will value.

Claim tax relief

Group life insurance premiums are an allowable business expense for corporation tax, helping you reduce your tax bill. HMRC doesn't treat a group life scheme as a benefit in kind, meaning employees don't pay income tax on the benefit, and no additional employee or employer National Insurance payments apply.

Talk to a broker

An insurance broker can review policies across the market and advise you on the coverage that best meets your needs and budget. They'll help you compare policies and understand how the terms and conditions affect coverage and the claims process. They can also advise on additional benefits the policy provides to ensure you get cost-effective coverage.

Your benefits package should reflect the needs of all your employees, so consider how to balance it to ensure fairness and reflect different life stages. The risk of ill health increases as we age but can affect employees at any age.

Here are a few benefits that will provide valuable support during challenging times.

Critical illness coverage

Critical illness coverage pays a lump sum if an employee is diagnosed with a serious illness listed on the policy. Their condition doesn't have to be terminal, and they can use the payment however they choose. This could include home adaptations, private care, living costs or a family holiday.

Income protection insurance

Income protection insurance provides an insured employee with an income for up to two years if they're away from work due to illness. They're paid a percentage of their usual salary, which is typically higher than statutory sick pay, which only lasts for 28 weeks. It gives them time to recover without worrying about paying the bills.

Health insurance

Employee health insurance provides quick access to private medical care that can shorten absences from work, plus services that support employee well-being. Most private medical insurance includes access to telephone health helplines covering a range of topics. Insurers also offer Employee Assistance Programmes as an optional extra, with access to counselling and telephone helplines providing guidance on financial and legal topics.

Practical support services

Life insurance and employee health insurance offer various well-being services as part of their core coverage or as an optional extra. Providers vary, but benefits include EAPs with mental health support and legal and financial guidance, elder care advice, bereavement support and end-of-life planning.

A broker can help you understand what services each policy provides so you can tailor your coverage to your team's needs.

Group life insurance can provide your employees with a financial safety net should the worst happen. Considering the needs and priorities of your older employees lets you choose the right coverage for your team. Contact us for advice tailored to your needs.