Q&As

What issues should an employer consider when providing life insurance to its employees?

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Published on LexisPSL on 18/11/2013

The following Pensions Q&A provides comprehensive and up to date legal information covering:

  • What issues should an employer consider when providing life insurance to its employees?
  • Life insurance—basics
  • Life insurance—issues in practice
  • Using existing life insurance cover for auto-enrolled employees
  • Fixed and enhanced protection
  • Lifetime allowance and life insurance
  • Ceasing cover on grounds of age
  • Cover at differing rates for different employees

What issues should an employer consider when providing life insurance to its employees?

Life insurance—basics

Life insurance benefit (life cover) can form an important part of the employee benefit package that is used to both attract and retain employees. However, there is actually no legal requirement for employers to provide life cover for their employees with the exception of any contractual requirement to do so under an employee’s contract of employment.

Life cover is usually set up as a single scheme that covers a group of, or all of, the employer’s employees. It can be linked to the business's pension scheme where life cover is only provided if the employee is also a member of the scheme. Alternatively, those employees who are not members of the pension scheme could instead receive a reduced level of life cover under the same or a separate policy.

The sum assured under the life insurance policy is often calculated as a multiple of the employee's salary, for example two, three or four times a salary. The policy will pay out a lump sum death benefit to the employee’s dependants if the employee dies in service and so provides support for the deceased’s dependants (like their spouse/partner or children).

The lump sum death benefit paid from a registered life insurance scheme is paid tax free provided it is

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