A guide to life insurance for employers

Life insurance coverage couple

While it’s a pretty morbid subject, making sure there are plans in place if you were to die is one of the best things you can do for those who depend on you. But unfortunately, life insurance isn’t something all employers offer. As a business, life insurance can be a very attractive employee benefit for potential candidates, as well as a sure-fire way to boost retention rates. Here’s everything you need to know about this type of insurance if you’re thinking about adding it to your benefits package.

What is life insurance?

Life insurance was created to reassure your dependents that they’ll be taken care of if you were to die. It’s a legally binding contract where the insurer pays a lump sum (or regular payments) to one or more beneficiaries of your choice if the worst happens. 

It’s not compulsory, but around 30% of people pay for life insurance for peace of mind. For example, if you and your partner share the mortgage payments but you earn significantly more than they do, life insurance would pay out to make sure they can cover your share of the monthly payments.

How life insurance works

On your death, life insurance pays out either a lump sum or regular payments to your dependant(s). The amount your loved ones receive depends on the level of cover you opt for. You can decide how it's paid out and whether it goes towards inheritance and general savings or towards specific payments, like childcare, mortgage or rent.

How much does life insurance cost? 

The price you pay for life insurance depends on a number of variables, including:

  • The amount of cover you need
  • The type of policy (duration and whether it is a single or joint policy)
  • The life insurance term
  • Your age
  • Your health (e.g. whether you have any medical issues or you smoke)
  • Your family history
  • Your profession

The average cost of life insurance is currently £38.15 in the UK. But ultimately, the higher the risk of you dying and the insurance provider having to pay out, the higher your premiums will be. If you have (or have ever been diagnosed with) cancer, for example, you might find that life insurance costs more.

Types of life insurance

There are two main types of life insurance policy: term life and whole of life.

Term life insurance

Term life policies run for a fixed period of time, which is known as the ‘term’ of your policy. For instance, you could take out a policy for five, ten or 20 years. Bear in mind that this type of insurance only pays out if you die during the policy.

Here are the three kinds of term life policies to consider:

  • Level – This pays a lump sum if you die within the agreed term. Because the level of cover stays the same, this is considered the simplest, most affordable option.
  • Decreasing – This is where the level of cover reduces each year. It’s ideal if you have a repayment mortgage, as the outstanding loan decreases over time.
  • Increasing – The level of cover here grows over the term of the policy, as it’s designed to keep up with inflation.

Whole of life insurance 

The most popular type of policy, whole life insurance pays out no matter when you die, as long as you keep paying your premiums. People often opt for a whole of life policy to help towards big costs like a funeral or Inheritance Tax. As the pay-out when you die is guaranteed, this kind of policy is sometimes known as life assurance. 

It’s worth noting that they’re usually more expensive than shorter-term policies. Plus, there’s the possibility that if you live longer than you expect, you could end up paying more in than you’ll get out, making it not such a great deal.

Can you take out more than one life insurance policy? 

Yes, you’re within your rights to have a combination of life insurance agreements if you want to. Some people like to take out an additional policy if the fixed insurance payout on their existing policy won’t stretch to cover extra costs, like tuition or school fees for your children. Or maybe you’ve made positive lifestyle changes like quitting smoking which means you could get a cheaper premium elsewhere, but you want to keep your existing policy while you browse alternatives.

Do you need life insurance?

It’s completely up to each person and depends on their circumstances. If you’re single and have no dependents, you might not deem it a worthwhile expense. But if you have a partner or anyone else who relies on your income (if you’re a carer, for example) you might want to consider what would happen to them if you died. Many people choose to take out life insurance once they become a parent, or if their job carries more risk than most.

As it’s such an individual decision – and one that often changes as people hit different life milestones – it’s a good idea to offer life insurance as an employee benefit so people can make their own choice. Some providers might offer different levels of cover at preferable prices. If you’re looking for a Ben-recommended life insurance provider, check out our benefits catalogue. People who take out life insurance often take out private medical insurance as well, so why not take a look at our medical insurance options too?

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