Employers are overestimating the cost of group life insurance

Small businesses aren’t buying group life insurance. Despite it being the cheapest and simplest workplace benefit to understand, SME employers are veering away from the product because they are overestimating what it costs.

In research we conducted in November 2016, we asked employers to estimate the annual cost of providing £100,000 of life insurance benefit per employee, per year. According to the latest Swiss Re Group Watch report, the average cost is £115 per employee per annum.

Thirty-nine per cent of employers said group life insurance would cost between £51 and £150 pounds, estimating correctly. However, the majority (57%) estimated the cost would be in excess of £150:

  • 31% estimated between £151–£250
  • 15% said between £251–£350
  • 10% estimated between £351–£450
  • 1% said £451 plus

The remaining 4% estimated it would cost less than £50.

Data from The Pensions Regulator and Swiss Re shows that while there are 1.35 million SMEs in the UK, there are only 51,000 SME group life policies in place. This means that approximately 96% of SME employers are not providing cover. The fact that employers are so clearly overestimating the cost may be a contributing factor to these staggering figures.

Group life insurance

We understand that for many SMEs the idea of implementing employee benefits is an unknown quantity that sounds expensive, but it really isn’t. We often find that advisers and employers are surprised about how little group life cover actually costs and this research confirms that.

In the same survey 37% of employees said life insurance was one of their top three most valued benefits, making it the second most valued benefit after private medical insurance overall. Understanding the true cost of life insurance could help employers to see the value in the product and consider providing their people with the benefits they value most.

Advisers can help
It doesn’t stop at group life insurance. Cost was also the main reason why 43% of employers do not provide any additional employee benefits, other than a workplace pension.

So how can employers find a cost effective package for their people?

Seeking the help of a financial adviser is a good place to start. Advisers can use their expertise and experience to research the employee benefits market and collect quotes for a package that will suit the employer’s needs, meaning they are able to present employers with accurate costs.

Eliminating the misconception of what employee benefits cost, and more specifically, what group life insurance costs, will allow employers to make an informed decision on whether to implement them or not.

What’s more, as group life is one of the more cost effective benefits, it is a good place to start for SME employers. Implementing this as a secondary benefit to a workplace pension is a natural complement for providing financial protection for their people.

Group life tax relief
Group life insurance enjoys favourable tax treatment for employers and employees, meaning there’s additional cost benefits attached to the product that employers might not have thought of.

For employers, the premiums paid can normally be treated as a business expense, subject to the employer’s local Inspector of Taxes and for employees, group life will not be treated as a Benefit in Kind (P11D). Finally, through the use of a trust, claim benefits are paid tax free.

In a nutshell
Employers are overestimating the cost of group life insurance which may be a contributing factor to why approximately 96% of SMEs do not have group life in place.

Setting up a workplace pension, prompted by auto-enrolment, is for many employers their first experience with employee benefits. When expanding to create a package for employees, group life is a good second benefit, complementing a workplace pension with important financial cover.

By seeking the help of a financial adviser, employers will then be able to make an informed and educated decision on implementing benefits that will provide the most value to their people and business.