Where organisations clearly communicate the benefit to the employees, using insurer materials, they are afforded the most protection against disputed claims. This is easiest with flexible benefit schemes, as annual changes and lifetime events provide the opportunity for such on-going employee communications.
When looking at conditions covered group policies will usually offer a basic range of about 10-20 conditions and a wider range of perhaps 35 to 50 conditions.
This is a lot less than individual policies, but with around 90 per cent of group claims for cancer, heart attacks, strokes and MS, the additional areas provide peace of mind if not necessarily a volume of claims.
In contrast individual policies stick with the range of conditions available when they started. Careful consideration needs to be given if replacing a policy as a wider range of conditions may be at the cost of definitions that have been tightened as diagnostics and medical outcomes improve.
This has been reflected in the introduction of partial payments, an innovation that has not yet entered the group market.
Life insurance
For people of working age life insurance protects against the economic shock of death. This splits into two main uses; money to cover debts and money to replace on-going income.
Individual policies will continue for their term while premiums are paid. Group cover can be lost if employment ceases and so is usually unsuitable for protecting debt, a point seen in many Financial Ombudsman Service (Fos) decisions.
By, contrast group cover is a good way to offset loss of income, with minimal health requirements up to free cover levels of £1,500,000 or more, valuable tax advantages and low premiums. On the death of an employee in service, a lump sum of between two and four times salary is typical, although higher multiples are increasingly common.
The majority of death in service schemes are registered as pension schemes with HM Revenue & Customs (HMRC) and are set up under a discretionary trust.
There is no maximum benefit, although lump sum benefits from a registered scheme that exceed the £1m lifetime allowance are subject to tax.
Lump sum benefits paid via a discretionary trust are not subject to inheritance tax and could be paid before probate is granted. With possibly up to £20,000 of probate fees now payable on larger estates, the importance of this should not be underestimated. In addition premiums are not subject to income tax or national insurance.
Excepted life policies have many of the tax advantages of a registered scheme. Instead of a potential lifetime allowance (LTA) charge there are potential entry, exit and periodic trust charges.
