A matter of life and death

In his latest article he argues that we all need to face up to the inevitable and ensure we have proper plans in place to support our loved ones financially when the time comes.

It’s possible these days to dangle all sorts of benefits in front of employees and prospective employees. Options now can include help with childcare, cycle to work schemes, gym membership, shopping discounts – you name it. But there’s one benefit that I believe should be the first on the list of employers when they’re thinking about what they want to provide and employees considering what they want to be provided with: a benefit paid in the event of them dying.

It’s perhaps not the most obvious choice. People often shy away from even contemplating death, but that’s one reason why it is such an important benefit. As individuals, UK citizens tend to have far less insurance on themselves than their families need.

But why should it be down to employers to fill the gap?

Rather than seeing it as someone else’s problem, employers have a lot to gain by offering death benefits to their employees. Providing it can be seen as a real plus by employees with children of their own or who are responsible for the welfare of their own elderly parents. Quite apart from the cover having a monetary value, providing it marks you out as an employer who cares about your employees and their families, which can have a significant effect on employee morale and your company’s overall brand.

It is also one of the most inexpensive benefits you could provide. The price will vary according to various factors. These will include what your company does, what jobs your employees do within the company, your employees’ ages and where you are based. Some typical costs are shown here.

Manual/factory-based workers

Age Annual cost of £100,000 cover
30 £35.30
40 £63.90
50 £134.30

Office-based workers

Age Annual cost of £100,000 cover
30 £26.50
40 £41.80
50 £96.70

Rather than employees needing to complete complicated forms about their health histories cover will be given automatically, unless the levels of benefits are set particularly high, once they fulfil the eligibility criteria. These criteria are yours to set, but I would recommend simply covering all employees and not restricting membership in any way. Industry statistics show 99.6 per cent of claims are paid and the reason why it is not 100% is down to some employees not fulfilling eligibility criteria that had been set more tightly than intended. However you set it up, your employees will be covered twenty-four hours a day – not just while they are at work – and against all eventualities. In the event of a member’s death, the benefits do not form part of the estate so can be paid very quickly and give the member’s family a vital emergency fund.

Setting up a scheme in the first place used to be a bit of a rigmarole. A trust deed would have to be drawn up, trustees appointed, and the scheme registered with HMRC to obtain the very favourable tax advantages (benefits paid without inheritance tax applying, full tax relief on premiums for the business and not regarded as benefits in kind for employees). Although this is all still a perfectly legitimate way to proceed, many insurers now offer Master Trust facilities, run by professional, independent trustee companies, and a simple application form is all that’s required to get your scheme up and running.

Once you have set up a scheme, there’s little else to do, but this leads many employers into the trap of providing a benefit but then not telling their employees about it. If your employees are unaware of what you have set up for them the point is somewhat lost!

One way in which to maintain their consciousness of their death benefit cover is to ask them each to complete a ‘nomination of beneficiary’ form when they first join the scheme, and then to review it at least annually. Although useful means of reminding your employees of their cover, the primary purpose of these forms is to make it clear who an employee wants to receive the benefit in the event of their death. And reviewing the forms is important because people’s circumstances change over time – they marry, have children, and so on.

The scheme trustees can then use these forms to decide where it is any benefits should be paid. Although the trust must be set up so that trustees retain full discretion as to how benefits are distributed, if the trustees know who the member had in mind it can significantly shorten the time they need to investigate who should receive benefit payments. This could be of vital importance to a family relying on the benefit being paid quickly.

And it’s this point about families relying on this benefit that is at the heart of why I believe life cover needs to be at the top of the list of benefits companies should provide. Other benefits might give more instant gratification, but none will be appreciated more if the need arises. For most employees, thankfully, they will be long retired before they die, but people who die while still working will typically have families who depended on their income. I for one would hate to be in a situation where one of my colleagues died, my company had provided nothing for them, and their family was left to rely on the all too flimsy safety net provided by the State. Make sure your people are in the half of the UK workforce that gets this terrifically efficient benefit.

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About John Ritchie

John Ritchie is the founding CEO of Ellipse, a specialist online insurer covering the death and disability benefits offered by companies to their employees. He set up the business for Munich Re Group to challenge the long-established players in that sector and firmly believes that the digital age enables small, nimble companies, like Ellipse, to compete successfully with the big boys.