Group risk insurance is bought by employers to cover their employees. It includes group life, group critical illness and group income protection insurance.
It can help recruit, retain and engage talent, and can support the values and culture of an organisation. Group risk benefits allow employers to reinforce their position as a caring employer, throwing a financial lifeline to people when they need it most.
Employers may promise certain benefits to employees as part of the contract of employment. Rather than bear all of this risk themselves, many employers choose to take out group risk insurance policies to cover some or all of their liability for death benefits, long term sick pay and critical illness benefits.
Provided in isolation or as part of a wider benefits package, group risk benefits can give employees access to insured financial protection cover they might not be able to either afford or access for themselves.
Group risk benefits are a high value, low cost option for employers looking to offer something more to their staff.
Group risk policies are commercial contracts which support employers in meeting their contractual promises and legal obligations to their employees.
The employer is generally the policyholder, pays the premiums and claims are made by the employer in respect of their employees. Generally any claim is paid to the employer (or often the trustees of the pension scheme in the case of group life assurance).
Finance North arrange group risk policies and work with the employer to advise on the design of the benefit structure, who will be covered by the policy, the suitability of the policy and the selection of a provider.
Expert advice should always be taken when setting up or reviewing a group risk insurance scheme to ensure that optimum cover is provided, any extra support services offered alongside the policy are used and all tax efficiencies are maximised.
Group life assurance is the most common employer sponsored protection benefit in the UK and often represents the sole life insurance provision for low to middle income individuals.
Group life assurance provides a benefit should an employee die in service. This can be a lump sum payable to nominated beneficiaries or a taxable pension payable to the employee’s spouse, civil partner and/or other financial dependants, or both. A group life assurance policy can be put in place by the trustees of a pension scheme to cover the scheme’s liabilities for death in service benefits or by an employer to cover a contractual promise outside of a pension scheme to pay a benefit on an employee’s death in service.
Most group life assurance policies operate within HM Revenue & Customs’ regulatory framework for a ‘registered occupational pension scheme’ (which includes arrangements set up to provide benefits on death in service only). Generally, premiums paid by an employer can be offset against corporation tax and are not regarded as a benefit in kind. Lump sum death in service benefits can normally be paid tax free up to the Lifetime Allowance. It’s possible to provide death in service benefits in excess of the Lifetime Allowance but expert advice is required.
Group income protection, or permanent health insurance, is a policy taken out by an employer to cover a promise to provide sick pay to employees if illness or injury prevents them from working for a prolonged period. It can also replace lost income where an employee has to take a part-time or lower-paid position because of illness or injury.
The focus for a group income protection claim is whether or not the employee meets the definition of incapacity under the policy (in many cases, this is based on ability to do their own job). Group income protection providers support employees to help them return to work with reasonable adjustments made by their employer, often before they reach the point of making a claim. For more on reasonable adjustments, see our factsheet on disability and employment.
However, if the employee cannot work due to illness or injury the policy will pay a benefit of a proportion of their salary. The benefit is paid to the employer and then passed on to the employee through the PAYE system. The benefit level is designed to ensure that the employee will be able to maintain a reasonable standard of living but still has a financial incentive to return to work.
Insurers will also work with the employee and their employer to get them back to work as soon as it is appropriate. Insurers provide access to support services which may not otherwise be available to the employer and employee, for example access to physiotherapy or counselling sessions.
The employer usually gets corporation tax relief on premiums and benefits are normally paid to the employee via the employer’s standard payroll system on a monthly basis. The employee pays income tax and National Insurance contributions in the normal way. Generally, premiums are not treated as a P11D benefit for employees.
Group critical illness is a policy taken out by an employer to provide a tax-free lump sum to an employee on the diagnosis of one of a defined list of serious medical conditions or on undergoing one of a defined list of surgical procedures. The employer chooses between a level of core cover (which insures against some of the most serious critical illnesses) or core plus additional cover (which insures against a number of additional serious conditions too).
A claim will be considered once the employee has survived for a specified period and been diagnosed with or suffered one of the conditions covered by the policy. Most insurers will also offer cover for Permanent and Total Disability (for employees assessed as being permanently and totally disabled but not otherwise able to claim for one of the conditions covered by the policy).
Where cover is paid for by the employer, corporation tax relief is given on the premiums, the employer is liable for Class 1A National Insurance contributions on the premiums and premiums are treated as a P11D benefit for employees.
Group critical illness may be provided on a purely voluntary basis and/or as part of a flexible benefits arrangement. In this case, the premium the employee pays does not qualify for tax relief.
As the cover is often ‘voluntary’ or selected by the employee and, for most people no medical underwriting takes place, cover generally operates with a pre-existing condition exclusion. This means that someone with an existing medical condition will not be able to claim for this or a similar condition.
Risk management Group risk policies are used to manage people risk. Costs are known and can be budgeted for accordingly whereas employers self-insuring these risks may be exposed to potential peaks in claims from time to time. Group income protection is used by employers as an integral part of their absence management or attendance programme, together with additional support services (which are often provided by group risk providers for free or at a heavily discounted price).
Added value services Under a group risk policy both employees and employers get access to a wide range of extra support that can be used on a daily basis, even if a claim is never made. Such support services can include absence management, employee assistance programmes, GP helplines, online health assessments, second medical opinion services, fast-track access to counselling, physiotherapy, other occupational health services and more.
Flexible approach for employees over age 65 Employers are not legally obliged to extend provision of insured protection products (such as group life assurance) beyond age 65 (currently) or the State Pension Age (as this increases to 66, 67, 68 and beyond). This exemption applies to insured benefits only and does not apply to self-insured arrangements. Employers who do choose to continue insured group risk protection benefits to their staff beyond age 65 (currently) or the State Pension Age (as this increases) will find that group risk providers can be flexible in accommodating a range of upper ages or other solutions, such as a limited payment period under a group income protection policy. It is best to think ahead on this issue as it’s always easier to negotiate terms in advance rather that at the point when the first employee reaches age 65.
Group risk policies can dovetail with other provision
It is beneficial to consider how group risk protection benefits sit within the overall benefits package. For example:
In particular, understanding what comes along with a group risk policy (for example, employee assistance programmes, vocational rehabilitation, fast-track access to counselling, etc), and when and how to use it, is vital and merits equal consideration along with price and core protection.
There are over 23,000 IFA’s in the UK. There are however only a handful of advisers or consultant firms who are members of GRiD – the Group Risk industry body. Finance North was proud to be a member of GRiD in 2017/2018, and continue to offer business and corporate clients the very highest levels of advice and service in this highly skilled and niche market.
We also guarantee that we will never charge you a fee for our advice or service, and will at all times show you the utmost respect, providing you with a transparent and professional service. We are happy to put all our recommendations in writing, because we stand behind our advice 100%.