Group Life and Group Income Protection: An Overview

Group life insurance and group income protection are employer-paid benefits that pay out when an employee dies (group life) or is unable to work for an extended period due to illness or injury (group income protection). They sit alongside group private medical insurance (PMI) as the three pillars of employer-provided protection benefits.

This page is informational; Insured Health specialises in group PMI, not group life or group income protection. We’ve put this here because business clients regularly ask how the three fit together.

Group life insurance (death-in-service)

Often called “death-in-service” group life insurance pays a lump sum to an employee’s nominated beneficiaries if they die while still employed. Common features:

• A multiple of salary (typically 2x, 4x, or 6x)
• Cover from day one of employment, no medical questions for most employees
• Premiums paid by the employer, not a benefit-in-kind for employees
• Usually written under a registered trust to keep payouts outside the estate
• Cover ends when employment ends

For employees, group life is a significant benefit; buying the equivalent personally would often cost £20-£100 a month for a similarly healthy adult.

For employers, it’s a popular benefit because the cost per employee is relatively low (often £30-£100 per employee per year for 4x salary cover) and the impact on staff and families when someone does die is meaningful.

Group income protection

Group income protection pays a percentage of an employee’s salary if they’re unable to work for an extended period due to illness or injury. Typical structure:

• 50-75% of salary, paid for a fixed period (usually 2-5 years) or until retirement
• Deferred period of 13 or 26 weeks before benefit starts (lining up with employer sick pay)
• Premiums paid by the employer, taxable benefit-in-kind for employees in some setups
• Many policies include rehabilitation support; physio, mental health support, return-to-work guidance, which often pays for itself by reducing absence durations

Group income protection is generally cheaper than equivalent individual cover because risk is spread across the workforce. It also requires less individual underwriting; most employees are covered automatically, with only larger sums or higher earners requiring additional medical evidence.

How these fit with group PMI

A common protection stack for a UK SME:

1. Group life insurance; protects employees’ families if they die in service
2. Group income protection; covers the cost of long-term absence
3. Group PMI; gets sick employees treated faster so they’re not absent as long
4. Group cash plan (sometimes added); covers everyday healthcare costs

PMI shortens absence by speeding up treatment. Group income protection pays the bills if recovery still takes time. Group life is the safety net if the worst happens. The three products work together.

Tax treatment for employers

• Group life insurance premiums are generally a deductible business expense and not a benefit-in-kind for the employee under a registered scheme
• Group income protection premiums are typically deductible for the employer; benefits paid out are taxable as employment income for the employee
• Group PMI premiums are deductible for the employer but a P11D benefit-in-kind for the employee, taxed at their marginal rate

The exact treatment depends on scheme structure; worth confirming with an accountant or specialist adviser.

Underwriting and “free cover limits”

Most group schemes operate with a “free cover limit” a level of cover available to all employees without individual medical evidence, regardless of medical history. Employees needing cover above the free cover limit complete a medical questionnaire.

This is a key advantage of group cover: medical histories that would attract loadings or exclusions on individual cover are often accepted with no questions on a group scheme.

When does group life and income protection make sense?

Group life is increasingly seen as a near-essential staff benefit for UK SMEs from around 5 employees upwards. Group income protection is more often the “next benefit up” for businesses with established core benefits already.

Both are worth considering for:

• SMEs offering competitive packages to attract and retain staff
• Businesses where a long-term absence would be disruptive
• Industries where serious illness or accident risk is non-trivial

A note on what we offer

Insured Health specialises in group PMI for UK businesses. We don’t currently quote group life or group income protection. For those, a specialist group risk broker is the right next step; we’re happy to refer.

Frequently asked questions

Is group life insurance the same as death-in-service? Yes; death-in-service is the common name for group life insurance.

Does group income protection pay forever? Typically no; most schemes pay for 2 or 5 years, though some extend to retirement age. The deferred period and benefit term are key choices.

Are these benefits worth it for small SMEs? Group life is often viable from 5+ employees and provides significant value at modest cost. Group income protection tends to suit slightly larger SMEs or those with higher-paid roles.

Can employees keep these benefits after leaving? Most group schemes end with employment. Some group life policies include a continuation option allowing employees to convert to individual cover at standard rates.

For group PMI quotes, call 0800 131 0400 or email info@insuredhealth.co.uk. For group life and income protection, a specialist group risk broker is the right route; we’re happy to point you in the right direction.