Benjamin Franklin famously stated back in 1789 that in this world nothing can be said to be certain, except death and taxes.  So what could be more fitting than to look at the tax implications of employer provided life insurance?

Group Life Insurance – also known as Death in Service Insurance – is a popular employee benefit and often one of the first to be introduced by an employer as part of a benefits package. It is a fairly simple tax efficient benefit which offers employees and their loved ones peace of mind by providing a tax free cash lump sum should they pass away.  Normally the benefit ceases when the employee leaves the company or retires, so there is no post-employment cost.

Tax advantage for the employer

With Group Life Insurance the employer pays the Insurer directly for the employees’  life cover. These premiums are normally an allowable cost for corporation tax and are not subject to employers National Insurance (NI) contributions.

Income tax advantage for employees

For employees, the good news is that Group Life Insurance is not a taxable benefit in kind (P11d Benefit) – which means there is no income tax or employee NI to pay on the cover provided.  Under S307 ITEPA 2003, as long as the employer arranges the life insurance and pays the insurance provider directly,  the provision of life insurance is not a taxable benefit on the employee. 

If a policy is arranged by the employee though, with the company then picking up the bill by either reimbursing the employee or paying the insurer directly, then there is a benefit (not an exempt one) as the company are paying for a personal liability. This benefit will be subject to both income tax and employee/employer NI.

Inheritance tax for employees

Nearly all Group Life Insurance policies are written into trust, which means the payout falls outside of the deceased’s estate for inheritance tax (IHT) purposes. As a result, the beneficiaries won’t have to pay any IHT  on Death in Service payouts.

The non tax advantages

•    It is cheap. The average cost of a £100,000 benefit is only £100 a year per employee. So for a small company with 5 staff, the insurance may only cost £500-£1,000 a     year. The per employee cost is typically much lower than employees would pay if they bought it directly, so they value it higher than the actual cost to the employer.
•    It is a natural complement to pension saving, and the ideal starter employee benefit. With all companies now required to set up a workplace pension, life insurance provides financial security pre-retirement when pension savings are small.
•    Additional support services, such as bereavement counselling are often available. Providing emotional support in addition to the core insurance, these services provide an important source of support, free of charge.
•    Employees do not need to answer any medical questions. As the insurance covers all employees in the organisation, or within a clearly defined group or management grade, in most cases individual employees do not need to complete medical questions.
•    It is simple to administer. Once set up, the employer only needs to provide routine membership data to the insurer a few times a year at most. With many insurers, policies are administered online for additional convenience.

We would be delighted to advise you on any tax and accounting aspects of the provision of group life insurance products. Therefore, please do not hesitate to get in touch today on 01273 326 556.

SRC-Time Ltd
2nd Floor
Stanford Gate
South Road

T: +44 (0) 1273 326 556
F: +44 (0) 1273 733 827
E: info@src-time.co.uk

Related reading

This website uses cookies to ensure you get the best experience on our website.

By clicking any link on this page you are giving your consent for us to set cookies.