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What are Group Benefits?
As the name suggests, these are benefits (typically life insurance, critical illness cover and income protection) which cover a group of employees rather than a single, specific person.
How are they Arranged?
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A business must initially decide who it wants to cover. This could be the entire workforce or just specific roles, which could be expensive or difficult to recruit, such as veterinary surgeons, IT specialists or architects, in a bid to retain a specific group of employees for as long as possible. It is important to ensure that the arrangement isn't selective over who is covered. If an employee falls within the category parameters then cover is automatically provided.
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Cover levels then need to be decided up.
Often, that is it! (easy eh?!)
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Group schemes, have a FCL (Free Cover Level). Below this level of cover acceptance is guaranteed so in many cases the amount of underwriting is minimal or completely absent. For any members of the scheme whose cover level is above this FCL a streamlined underwriting process takes place, which is often far slicker than that available in the personal protection market.
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Each year scheme membership details are provided to take into account changes in salaries, job roles, new starters and leavers and the premium is adjusted accordingly.
Taxation of Premiums and Proceeds
The company typically pays the premiums on all 3 main types of employee benefit, which are treated as a tax-deductible business expense.
The employees tax position is then affected as follows:
Life:
No benefit-in-kind liability and in the event of a claim proceeds are paid out under a Master Trust and therefore are not liable for inheritance tax (IHT).
Income Protection:
No benefit-in-kind liability on the employee. In the event of a claim the proceeds are paid to the business and distributed to the employee on a Pay As You Earn (PAYE) basis and so taxed at the employees appropriate rate.
Critical Illness Cover:
Employee pays the benefit-in-kind liability of their share of the premium at their prevailing rate.
Considerations
Group schemes can be an excellent way, and in some instances a more cost-effective way, for company owners with pre-existing medical conditions to arrange cover rather than suffering increased premiums or policies with exclusions which can occur when considering individual protection.
Simon Dunn - Jan 2024
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