Why you still might get life insurance even if your company provides it?

June 23rd, 2022
Why you still might get life insurance even if your company provides it?

Having a life insurance policy is essential, especially if you have people that depend on you financially. It can bring financial security and peace of mind to your loved ones should the unthinkable happen to you. Despite this, around one in four UK breadwinners, or 8.5 million adults, do not have life cover in place [1]. Many people do, however, have life insurance as a benefit from the company they work for. But while company life insurance for employees is an attractive benefit, we ask, is it also a wise idea to take out a separate life insurance policy too? We explore the benefits and disadvantages of employee life insurance and why you may still want to get your own private life insurance even if your company offers it.

Is it possible to get more than one life insurance policy?

Firstly, we need to address the common misconception that you can only take out one life insurance policy. In fact, there is no limit to how many life insurance policies you can take out. A lot of people assume that you can only have one as that is the case with home and car insurance. There are no rules on how many life insurance policies you can have and how many companies you take out policies with. If you do have multiple policies, you may be asked to justify the amount of coverage requested.

There are several reasons why an individual may want to take out more than one life insurance policy. This can be in order to help them cover more than one financial responsibility, for example, their mortgage or their children’s education. It is important to be aware as to how the terms and conditions of each contract you sign will affect your beneficiaries and a broker or advisor may be able to help you with this.

What is company life insurance for employees?

Employee life insurance is a valuable and popular employee benefit, often provided by companies in the UK. Also known as Employer paid life insurance or company paid life insurance, it is used to describe any kind of life insurance paid for by an employer.

There are two main types available:

  • Employee life insurance
  • Key person insurance
What is Employee Life Insurance?

Under this type of policy, it is the business which owns the policy and pays the premiums on it. This means that if an employee dies while employed at the company, their beneficiaries will be paid a lump sum, often linked to their annual salary. It is estimated that around 40% of UK staff are in receipt of this benefit [2]. There are several benefits for employees covered by this type of life insurance.

– There is the peace of mind that comes with knowing that your family will get some financial support following your death. The lump sum they receive can be used for anything, be that mortgage payments, funeral costs, to pay off debts or to cover household bills.

– The lump sum paid upon an employee’s death is paid into trust and is therefore not subject to inheritance tax. This can help to maximise the amount received by your loved ones, as the pay out will not be considered part of your estate.

– The cost of a life insurance policy is often what puts people off arranging one so this takes that concern away as the premium is paid by the business. Some companies do offer options for voluntary contributions to life insurance cover too.

– It is often the most convenient option and means you do not have to search around for a life insurance policy. You will not need to keep track of policies and payments, a perk for those who find budgeting and financial organisation more challenging.

– Medical underwriting is often not needed as employee life insurance is treated as a group policy. With a personal life insurance policy, underwriting is almost always carried out. An employee life insurance can be an ideal option for anyone suffering from a condition they fear could increase the cost of their life insurance premiums.

– The cause of death will not impact on the policy – your nominated beneficiaries will get a pay out regardless of how and where you die.

What are the benefits of Employee Life Insurance for employers?

Offering a life insurance policy for workers helps to boost employee morale and lets staff know they are valued. It can also help to attract the best talent and keep them on your books too. Setting up a life insurance scheme for your employees can be fairly easy to do, although the amount you pay will depend on the type of business you run and how many employees there are. Setting up a group life insurance scheme will mean your company will need to have a trust set up to receive the money when a pay out is made.

Are Death in Service benefit and a group life insurance for employees the same thing?

You may have heard of a death in service benefit offered by employers. They are in fact, the same thing, simply referred to under different names. The term Death in Service appears to imply that your death must have occurred while working on the job. That is not the case. You simply need to be on the company’s payroll to receive this benefit. Death in Service benefit and Employee Life Insurance are, therefore, the same thing.

Are there any disadvantages to Employee Life Insurance?

There are many advantages to being covered under an Employee Life Insurance policy, not least the fact that the employer pays the premiums. But there are also some downsides which need to be considered too.

– Most employers offer a set pay out should an employee die while employed by that company. This may be enough if you are young, healthy and do not have dependents. However, if you have a family that relies upon your income this may simply not be enough. The amount of coverage a person needs can vary dramatically according to their own personal situation. However, many financial experts recommend opting for around 10 to 15 times your annual income as coverage [3]. Most companies offer a life insurance amount of around three to four times your annual salary.

– You do not have any say over what kind of life insurance you get. You may want term or whole life insurance, life assurance or joint life insurance. An Employee Life Insurance Policy means you have no control over the type and terms of the policy. Often, your employee policy is linked to your salary and you cannot, therefore, control the amount. It will only change if your salary changes.

– If you change jobs, you lose your insurance. Few people tend to stay in the same job at the same company for their entire working life. Research has shown that the average UK worker will change employer every five years [4]. This means that when an employee does leave, they will lose their life insurance and the company they transfer to simply may not offer it as a benefit. They will then have to find their own life insurance policy and factor in monthly premiums to their existing budget. This is also true if a person is made redundant from a company.

Why might you still get life insurance even if your company provides it?

This list of drawbacks associated with Employee Life Insurance, or Death in Service Benefit, means that in many cases, it may be prudent to take out your own life insurance policy too. Employee Life Insurance may simply not go far enough for your situation. If you want to take out a more detailed policy, which is tailored to your family, your needs and your life then you may want to take out your own individual or joint life insurance policy.

You will have to incur the costs of this yourself, of course, but you can then view the company policy as a ‘bonus’ coverage. You will need to consider your own personal situation before deciding whether your Employee Life Insurance is enough for you and your family. If you do want to take out your own separate life insurance policy, Free Price Compare can help you. We can search through hundreds of quotes in a matter of seconds to help you find which life insurance company is the best for you. We can get quotes from some of the UK’s biggest insurance companies to help you find one with the right level of cover for you and the right premium. Simply enter your details into our online search engine and we will do the rest.

What is Key Person Insurance?

Key Person Insurance is another type of employer-led life insurance policy. It is a life insurance policy taken out by a company on the life of a key employee, one who is classed as essential to the business. It helps to protect against the loss of value and profits that would occur should this key person die while in employment. The person covered under the policy should be instrumental to the operation of the company and without them, the fortunes of the company would be compromised. Unlike Employee Life Insurance, Key Person Insurance protects the business – not the individual. If the protected person does die or falls critically ill while in the employment of the company, the lump sum is paid to the company and not that person’s family.

In conclusion

Employee Life Insurance is, without doubt, an attractive perk offered by many companies in the UK. However, it does have a number of disadvantages that might make you want to consider taking out a personal life insurance policy alongside it. Those covered by a group life insurance such as Employee Life Insurance might find it simply does not offer as much cover as they would need to support their family upon their death. It also means they have no control over the policy as it is selected by their employer.

Our personal lives, family lives and circumstances are not all the same and so a group life insurance may not have the flexibility you need. In many cases, it is best to consider Employee Life Insurance as part of your own life insurance portfolio which you can build up to ensure you have the right level of cover for you. A personal life insurance policy is a wise choice for those with dependents or other financial obligations to make sure they get coverage which is perfectly tailored to them. While the attraction of an Employee Life Insurance is that the premium is paid by your bosses, the extra peace of mind a personal life insurance policy could bring can be priceless.

Illustrative life insurance premium prices

Life cover (Level term assurance)
Age£100,000 over 20 years£250,000 over 20 years
Non-smokerSmokerNon-smokerSmoker
25£3.74£5.28£6.26£9.95
35£5.66£10.10£10.79£19.86
45£11.18£25.13£23.38£54.76
55£26.40£69.98£61.16£166.36
Life cover with Critical Illness (Level term)
Age£100,000 over 20 years£250,000 over 20 years
Non-smokerSmokerNon-smokerSmoker
25£3.51£5.71£5.71£6.81
35£4.91£9.26£9.26£13.50
45£7.37£17.63£17.63£29.80
55£18.65£43.63£43.63£70.96
These prices are provided by our partner LifeSearch as of the 27th April 2022. Prices shown are monthly premiums based on smoker and non-smoker rates (no nicotine or replacement for minimum of 12 months) and assume no additional health conditions or hazardous occupation or hobbies.

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