This week I have put some HR questions to Nick Skipper, director of employee benefits at Clear Insurance Management, to better understand how this important and popular benefit works:-
Q: How is death in service perceived as a benefit by HR and by employees?
A: Employees seem to value the benefit as they don’t pay tax on it during their employment and there is no tax to pay on their death (when their beneficiaries receive the pay out). For HR the benefit is attractive as it is low cost and easy and quick to put in place.
Q: Has death in service over being paying out for Covid-19 related deaths?
A: Yes, policies are for death by any cause and have been paying out for Covid-19?
Q: What is the average multiplier on salary?
A: This varies dependent upon the employer and the size of the scheme, but the typical average is 4x salary.
Q: Do businesses have different multipliers applying to different management level and if so what’s the spread of multipliers?
A: Sometimes yes, but again depends on size of scheme. Differing multipliers only tend to be utilised in large businesses when more of a differentiator between seniority is required. Also schemes which have been running for many years and are aligned to pension membership are more likely to see differing multipliers. In these kinds of schemes multiplier spreads can range from 3x to as high as 10x.
Q: How much is cost of premium calculated?
A: Smaller scheme premiums are calculated on the cost for each employee based on their age, gender and salary. The sum of these individual elements represent the premium payable. Larger schemes tend to be costed based on average age and average salary of the employees being covered. We usually undertake a benchmark exercise to ensure that any premium quoted is within the ballpark for the relevant sector.
Q: Is the benefit from a Group Life Assurance policy taxable?
A: The benefit is paid out under Trust so will normally be tax free. In addition, the premiums payable for the benefit are not treated as a benefit in kind and hence are not subject to tax.
Q: Who receives the benefit in the event of a claim?
A: The employee nominates a beneficiary(ies). On death the Trustees of the scheme decide who to pay the benefit to and will generally follow any nomination’s made.
Q: Can employees who have reached their lifetime pension limit/opted for HMRC Protection be included in a Group Life Assurance scheme?
A: They cannot join a Registered Group Life Assurance scheme but a separate linked Excepted policy can be used to provide the Group Life Assurance benefits without this exceeding the lifetime allowance.
Q: Does death in service come with any other services attached?
A: Most insurers include a bereavement counselling service as standard. A number of insurers also include an Employee Assistance Programme (EAP) and access to wellbeing services.
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