Taking out life insurance is a wise decision, giving policyholders peace of mind that the future of their loved ones is secured. There’s always the option to take out life insurance privately, but many employers now offer life insurance as part of their employee benefits package.
This presents advantages for both the employer and the employee. Some employers don’t offer group insurance that covers all employees but may instead offer relevant life insurance for particular individuals. This blog post explores company life insurance in more detail, including asking is company life insurance taxable?
What is company life insurance?
Company life insurance is a life insurance plan provided to staff by their employer, often as part of an employee benefits package. Business life insurance of this type is often known as death in service. Offering life insurance presents benefits for both employees and the organisation. Some types of life insurance policies can help to keep the organisation running successfully if a key employee passes away. Life cover can also help to attract top talent if there are great employee benefits available.
Including life insurance in a comprehensive benefits package is also a positive for employees and their families because it provides reassurance and financial security. It also demonstrates to employees that the company genuinely cares about them and their families and is seeking to support and protect them in the worst-case scenario. Many life insurance policies offer more than just financial benefits, including things like bereavement support and assistance with probate and other relating issues following a death.
Group life insurance
Group life insurance is typically offered to all of a company’s employees, regardless of the scale of the business. Life insurance of this type is often suitable for companies with a large number of employees who all need to be offered the same cover. Premiums are paid by the employer and if an employee passes away whilst working for the company, a multiple or percentage of their annual salary will be paid out to their family as a lump sum. However, if the employee leaves their role, they will lose this protection.
Relevant life insurance
Relevant life insurance is suitable for organisations that don’t want to provide cover for every employee or want to provide cover over the limits available with a Group Life Insurance scheme. A relevant life policy provides insurance for an individual employee and can also be used for company directors. This type of insurance is particularly useful for smaller businesses with a limited number of employees as an alternative to group insurance. It can also be suitable for organisations with limited resources to provide life insurance cover. This type of insurance typically covers terminal illness, as well as other causes of death.
Keyman insurance is a third type of life insurance that covers the individuals who are essential to the successful running of a business. This type of insurance is fully owned by the company, and it’s the company that receives the payment in the event of the employee dying. The payment is used to mitigate any financial repercussions to the business resulting from the employee’s death, and many policies include critical illness cover to provide support whilst a key employee is unable to work for an extended period of time.
Advantages of choosing business life insurance
A key advantage of a company life insurance policy rather than a private policy is the cost. Choosing their own policy means employees would have to pay their own premiums, but with a company life insurance, either through a group or relevant life policy, it is the employer who pays the premiums. This makes business life insurance appealing for those who might otherwise struggle to pay for an insurance policy.
For businesses that take out keyman life insurance for senior individuals, you also have the peace of mind that the company can keep running in the event of key personnel passing away, as it minimises the disruption caused by the death.
Is company life insurance taxable?
One of the biggest concerns with business insurance plans is its tax position. Death in service, group life insurance, relevant life insurance, and keyman insurance policies are usually considered to be a business expense. This means that the company does not need to pay corporation tax on the policy. However, levels and bases of, and relief from, taxation is subject to change so it is imperative to speak to an adviser or your accountant to identify the most suitable product for your business.