Build a Happier Business with Protected Employees

Arranging protection for your employees can offer peace of mind, and could cost less than you think. The main types of protection are explained below.

Death in Service Benefits
A death in service benefit is intended to pay out a lump sum if your employee dies while they are working for the company.

Traditionally, death in service benefits were set up as part of a pension scheme. However, as occupational pension schemes have fallen out of favour, standalone insurance policies are now more common.

Group life cover is one way of achieving this. The policy will allow you to add all of your employees, including directors, to a single plan.

You can set different cover levels for different employees, which can be expressed either as a lump sum or a multiple of salary.

Group life insurance usually offers a ‘free cover limit.’ This does not mean free of charge, but refers to the amount of cover the insurer will offer without medical underwriting.

Group life insurance is extremely tax efficient. The business receives corporation tax relief and the premiums are not a taxable benefit in kind for the employee. Death benefits are paid out free of tax.

For senior team members and directors, you may want to consider relevant life cover. This is set up on an individual basis rather than as part of a group, and full underwriting is required. However like a group life policy, a relevant life plan is tax-efficient for the business and the employee.

There are some limitations on cover, for example 15 or 20 times annual earnings. The expiry date must be no later than the employee’s 75th birthday and it is not usually possible to include critical illness cover or a joint life.

Critical Illness
The company can also arrange group critical illness cover for employees. This can pay out a much-needed lump sum if your employee is diagnosed with a serious health condition.

Group insurance generally offers better value for money than an individual policy. The premiums are a tax-deductible business expense.

However, unlike life insurance, critical illness is a taxable benefit for the employee. This means that if the premiums are £30 per month, a basic rate taxpayer will pay £6 per month in tax. While this is an extra cost, it is much more cost effective than setting up a policy independently.

Any payout from the policy is free of tax.

Income Protection
With chronic health conditions on the rise, employees want to know that they will be protected if they are affected by a long-term illness. State benefits will rarely provide enough to live on,

An income protection policy is a useful way of providing extended sick pay to your team members.
This works as follows:

• The plan will start to pay out after a deferral period, usually 6 months or a year. This would normally align with company or statutory sick pay stopping.
• The plan will pay out a regular income to replace lost wages.
• While some policies will pay a tax-free benefit directly to the employee, group policies will generally pay the benefit to the employer, who will deduct tax and National Insurance before passing on the net amount to the employee.
• The benefits will continue for a fixed term. This can range from a few years to until retirement age.

Private Medical Insurance
You may also wish to provide private medical insurance to your employees.

This can cover the diagnosis and treatment of various health conditions. This can range from a short course of physiotherapy to extended cancer treatment.

Members can also receive added benefits, such as regular health screenings or access to a private telephone GP service. This can help to catch health conditions more quickly, which can lead to a better outcome.

Protecting the Business
Of course, it is not only the employees who are vulnerable in the event of death or illness. The loss of vital team members, even temporarily, can significantly impact the business.

You can set up key person cover to pay out a lump sum to the business if the insured employee dies. This is normally set up as part of a shareholder protection arrangement, as it allows the business to buy back the deceased person’s shares from their estate.

It can also be set up to cover the costs of recruiting and training a replacement for a key team member. This can be useful for specialist roles that cannot be easily filled.

Some income protection policies will also pay a benefit to the business, which can contribute towards the extra costs when an employee is off sick.

What Are the Benefits?
As a business owner, you need to ensure that every penny spent offers value for money and will enhance the business. Protecting your employees is a good idea for the following reasons:

• Any insurance covering health conditions can help improve the employee’s quality of life and reduce the amount of sickness absence. Quicker treatment under a private health insurance policy can mean an earlier return to work.
• It adds value to the employee’s remuneration package and can improve perceptions of the business when recruiting.
• It covers benefits that would be significantly more expensive to set up on an individual basis.
• Premiums are usually good value, particularly if you are insuring a number of people.
• It can enhance staff morale if employees feel like you are looking out for them.

A happy, secure workforce leads to a more productive business. Protecting your employees can help achieve this.

Please don’t hesitate to contact a member of the team to find out more about business protection.