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Group Life Insurance

Group Life Insurance: There are many technical aspects to group life insurance—far more than we can cover on this page—so here are some critical things for you to know.

From 2 people: Group life insurance can be arranged for as little as two people.

Levels of cover: This can be the same for everyone or different for different groups. You could have every employee insured for $100,000.00. Or you could have directors insured for $150,000.00. Managers would be insured at three times their annual salary, and everyone else at one times their salary.

Payn Employees: To be eligible for most group life insurance policies, there must be an employer-employee relationship with the employee on the payroll and actively at work. It is sometimes possible to cover non-salaried partners and other non-employed members, but this is case-by-case.

The company pays for premiums. These can then be offset against corporation tax.

Anti-selection: A significant grouping rule is that you can't anti-select who is and isn't covered. The most straightforward way to explain this is that if there are four directors, all four would need to be covered by the policy. You cannot insure Director A because he ticked everyone off at the weekend.

Cost: You may be surprised at how low the premiums are for life insurance for a group of people. The reason for this is what we in the insurance world call 'pooled risk,' aka insurance jargon.

After a Claim: The policy will continue to insure everyone else, just like before the claim.

Advisers must explain and check with you more before arranging a group life insurance policy for you. Our industry-trained Advisors are here to help you organize the policy.

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A Big Risk of Group Life Insurance

Group insurance is a brilliant way to provide cost-effective life insurance for your organization. It can often also be a good employee retention strategy, as many people now want more value from their employers.


There are two ways to arrange group life insurance: Excepted or registered.


There are positives and cons to both of these approaches, but here is a rapid rundown.


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Excepted

Pros:

  • A successful payout is not added to the deceased person's lifetime allowance.
  • Being a member of this type of group life insurance does not affect a person's pension status.

Cons:

  • On the 10th, 20th, or 30th anniversary of the policy Trust going live, a claim payout in the Trust on those specific dates can potentially be taxed.

Registered

Pros:

  • There should be no taxation due on a successful claim on the policy.

Cons:

  • A successful payout will be added to a person's lifetime allowance, which could lead to taxation on the value of their pension.
  • If a person is added to this group life insurance with a protected pension status, they will immediately lose this protection and cannot get it back.
  • This will lead to substantial tax implications.

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To fully understand which of these options is best for your organization, we recommend speaking to one of our Advisers. They can explain all the technical aspects for you (with as little jargon as possible).


Interestingly, group life insurance comes with a free medical underwriting limit. This means the insurer will not consider any 'risks' they would usually ask about for personal insurance up to certain coverage levels.


This can mean that people who would potentially have their premiums rated, postponed, or declined life insurance if they applied personally might be automatically covered by the group life insurance without their risk affecting the coverage or ability to claim.


The free medical underwriting limit often starts at $500,000 per person. But this can be linked to a maximum multiple of your salary, and it's essential to check if your income level brings this figure down.


This can include health conditions, travel, occupations, and sports.


That being said, there are times that an insurer offering group life insurance might ask things such as, 'Have you had cancer, a heart attack, or a stroke in the last 12 months?' or 'Do any of the employees travel to this list of locations?' These questions are usually minimal, and not all insurers ask them. This is why our Advisers can be so helpful to you, as we know where to place your group life insurance application to get the best terms for you.