Offering life insurance as an employee benefit is one of the most cost-effective ways to improve staff wellbeing and retention. For UK limited companies, there are several ways to provide life cover, each with its own tax and administrative considerations. We’ll explain how to offer life insurance to employees as a limited company, outline your options, and help you choose the right approach for your business.
Why offer life insurance to employees?
Life insurance is a valuable employee benefit that demonstrates your company’s care for its staff and their families. It can:
- Help attract and retain top talent.
- Support employee wellbeing and financial security.
- Set your business apart from competitors.
- Provide tax efficiencies for both the employer and the employee.
Many employees now expect some form of financial protection in their benefits package, especially as awareness of income security, the cost of living and health anxiety among the future workforce grows. The benefits can be particularly useful for midsized companies.
What are your options as a limited company?
There are two main ways to offer life insurance to employees:
1. Group life insurance (death in service benefit)
Group life insurance is a single policy that covers multiple employees. It pays a tax-free lump sum to the employee’s family if they pass away while employed.
Key features:
- Typically covers 3 to 4 times the salary
- Paid for by the employer
- Premiums usually qualify as a business expense for corporation tax relief.
- Benefits are not classed as a benefit-in-kind for employees.
- Can include all or a select group of employees
Group life schemes are often best suited to businesses with five or more employees, though some insurers offer options for smaller companies.
2. Relevant life insurance
Relevant Life Insurance is an individual policy for a single employee or director, paid for by the business. It offers similar tax benefits to group life insurance without requiring the establishment of a full scheme.
Key features:
- Suitable for directors or small teams
- Written into a discretionary trust to keep the payout outside the estate
- Premiums are tax-deductible for the business
- Not treated as a benefit-in-kind for the employee
- Payout is typically free from inheritance tax
Relevant life cover is ideal for limited companies with only one or two employees or for those who want to offer cover to directors only.
Tax benefits of offering life insurance
Both group life and relevant life policies offer generous tax advantages when set up correctly:
Premiums are usually tax-deductible for corporation tax purposes.
Employees do not pay income tax or national insurance on the premiums.
Payouts are generally free from income tax and inheritance tax.
No impact on the employee’s lifetime pension allowance.
These benefits make life insurance one of the most tax-efficient ways to provide value to employees.
How to set it up
To offer life insurance as a limited company, follow these steps:
- Decide who you want to cover – all staff, specific teams, or just directors
- Choose the correct type of policy – group life or relevant life
- Work with a regulated insurance adviser or broker to compare providers
- Set up a trust for relevant life to ensure the payout stays outside the estate
- Communicate the benefit to employees as part of your wellbeing package
Most policies can be arranged quickly and reviewed annually. A broker can also help ensure policies are compliant and cost-effective.
Offering life insurance to employees as a limited company is a powerful way to provide financial protection, enhance your benefits package, and gain tax efficiencies. Whether you choose group life insurance or relevant life, setting up the right cover can deliver real value to both your staff and your business.
If you are ready to explore your options, speak with one of our protection specialists who specialises in business life insurance to get tailored advice and a quote that fits your team and budget.
