How much group life cover should your business offer employees?

A group life insurance policy can cover all your employees and provide them with life cover that pays a lump sum to their loved ones if they die whilst employed by you. The lump sum payment is calculated as a multiple of their annual salary. It is usually paid into a discretionary trust, so it doesn't form part of an employee's estate for inheritance tax purposes.

The premium you pay and whether it fits your budget are likely the main financial considerations, so let's look at some factors that can influence the cost.

Salary multiple

As we've mentioned, the lump-sum payment an employee's family receives is based on a multiple of the employee's annual salary. You can choose the multiple, but most insurers offering group life insurance offer between 2x and 4x an employee's salary. The higher the multiple, the higher your premiums will be.

The age of your workforce

When an insurance provider sends you a group life cover quote, they first assess the risk that an employee will claim on the policy. Every insurer is different, but most will consider your workforce's average age. The older your employees are, the more likely they are to claim, so your premiums will be higher if you have a significant proportion of older employees.

Your industry

Your insurers will also assess the risks specific to your industry. If your team regularly performs dangerous tasks or works in a hazardous work location, the cost will be higher than if they work at a desk. Most providers will also look at individual roles, so if you have one or two people in high-risk jobs, with the majority in office-based roles, this will reduce your premiums.

Employee numbers

Premiums will typically be lower per head if you have a large workforce than if you have a small team because your insurance provider can spread the risk over a larger group of people. Accordingly, the cost per head decreases as the number of employees your group life insurance covers increases.

When evaluating whether your group life insurance premium is cost-effective and affordable, it's important to look at the full picture. Seeking professional advice from your accountant or financial adviser will help you make an informed decision.

Tax-efficiency

When your business pays for employees' group life policies as part of their employee benefits package, premiums are typically an allowable business expense, meaning you can claim corporation tax relief on the cost. This can make a more generous life cover multiple more cost-effective.

Your budget

Seeking professional guidance from your accountant can help you set a budget. We recommend getting group life insurance quotes via a broker to help you get the most cost-effective cover. Some group life insurance can also include critical illness cover, insurance for international employees and support services for an employee's family when they're gone. A broker can help you understand your options and tailor your cover.

While your budget is a vital consideration, your employees' needs are worth considering as well.

Death-in-service benefits provide your employees' loved ones with financial security when they're gone. Considering their needs alongside financial factors will help make group life insurance a truly valuable benefit.

Demographics

We've mentioned that your workforce's average age affects your premium, but other demographics are worth considering as well. For example, employees with mortgages, young families and other financial commitments will value group life insurance that ensures their loved ones will be able to pay their bills and maintain their lifestyle if they die unexpectedly.

Salary considerations

Within your business, you'll likely have a broad range of salaries, from junior employees and apprentices to your senior leadership team. A group life insurance policy can offer a flat multiple for all staff or a tiered structure in which higher earners receive a higher multiple than lower earners. Consider your business values around treating staff fairly, and which structure best reflects that.

Ensuring fairness

It's important to consider fairness in the context of your business's salary spread, but there are other factors to consider as well. For example, some of your key or senior staff may have taken on financial risks or carry more responsibility within the business. This can affect their mental health and their families' need for financial support, so you may want to offer group life insurance with a higher lump sum to reflect this.

The wider benefits package

Consider your group life insurance in the context of your wider benefits package. As mentioned, life cover can provide other services and cover, such as critical illness insurance. Consider your overall benefits package to determine how a group life insurance payment fits within it.

Balancing financial considerations with human factors to offer generous death-in-service cover as part of your employee benefits package has numerous business advantages. It demonstrates your willingness to provide ongoing financial support to an employee's family after their death.

The recruitment advantages

Job seekers increasingly seek meaningful work with employers whose values align with their own. When considering a new role, they'll look at salary and other employee benefits as a benchmark. Surveys suggest that life cover is a valued employee benefit. While it doesn't rank as highly as other employee benefits, such as paid sick leave, mental health support, and flexible working, a higher multiple on your group life cover could show generosity and give you the edge over your competitors.

Employee retention and engagement

The cost-of-living crisis has made employees increasingly aware of the need for financial stability. If your team members have experienced financial stress, worrying about how to pay the bills, they may also have wondered how they'll provide for their families in the future. Knowing that you've provided life cover, which will give their loved ones financial support should the worst happen, helps create a positive workplace culture where staff feel valued. That makes them more likely to stay and increases engagement, which has positive effects on teamwork, productivity, and customer service.

Communication is key

The advantages we've mentioned depend on good communication. Life insurance isn't always top of mind for employees, often because they may not think they'll need it. They may focus more on benefits that provide practical support in their daily lives or those funded by their monthly pay. However, ensuring job applicants and existing employees understand the support their life cover provides and why it matters helps you to recruit and retain skilled staff.

It's worth speaking with a broker for guidance when setting up group life insurance. Here are a few practical considerations to bear in mind when setting up your scheme.

The free cover limit

Most group life insurance lets your employees enrol without providing any medical information, as policies don't typically use medical underwriting, where insurers assess risk based on a member's medical history. There are exceptions. The free cover limit is the amount an employee can receive before needing to provide medical details.

The calculation varies depending on the multiple and the number of employees covered. A broker can talk you through it when comparing quotes.

Scheme structure

We've mentioned that life cover can have flat or tiered multiples, which affect your premium and the policy's structure. You should also consider your approach to part-time and fixed-term employees regarding eligibility for policy coverage and the applicable multiple.

Nominating beneficiaries

Employees complete a form confirming who should receive their life insurance payment if they die. If a recruit joins the policy when starting their role, the nomination form will likely be one of many forms they must complete during their induction. It's worth sending staff regular reminders to ensure their nomination form remains accurate. For example, if they were to divorce and start a new relationship, they may not want their former spouse to receive the payment.

Policy reviews

Your life cover will renew annually, and it might be tempting to let that happen automatically. However, it's worth reviewing your coverage to ensure it still meets your requirements. Increased staff numbers, higher salaries, and changes to the state pension age can all affect your workers' finances and the coverage required. A broker can help you review your policy and advise on changes.

Choosing the level of life cover you provide to your employees can be complex, requiring a balance between financial and human factors. At Globacare, we provide advice tailored to your needs, based on our specialist market insights and your knowledge of your business and workforce. Contact us for a comparison quote.