Group life insurance — usually called death in service — pays a lump sum, typically 2–4x salary, to an employee's beneficiaries if they die while employed. It's written under trust, so payouts are generally free of inheritance tax and outside probate. Costs are low: typically around 0.2–0.5% of payroll, and premiums are generally tax-deductible.
- ✓Death in service typically pays 2–4x salary, usually tax-free via a discretionary trust.
- ✓It's among the cheapest benefits to run — generally around 0.2–0.5% of payroll.
- ✓Registered scheme payouts count towards the £1,073,100 lump sum and death benefit allowance.
What group life insurance is
Group life insurance is a single policy that pays a lump sum to an employee's family or chosen beneficiaries if the employee dies while working for you. The benefit is usually set as a multiple of salary — 2x is common, 4x is generous, and some professional firms go higher. There's no requirement for the death to be work-related: an employee who dies of any cause while covered triggers the payout.
It's typically the first insured benefit a company adds after pensions, and often the last to be cut, because the economics are so lopsided: for a small, predictable cost, a family receives a sum that can clear a mortgage or replace years of income. Employees consistently value it far above what it costs to provide.
Why it's written under trust — and what that means for tax
Group life policies are almost always written under a discretionary trust. Instead of the payout landing in the deceased employee's estate, the insurer pays the trustees, who pass it to beneficiaries guided by the employee's nomination form. Two big practical consequences follow: the money is generally outside the estate for inheritance tax, and it bypasses probate, so families typically receive it in weeks rather than months.
The tax treatment for the living is equally friendly. Premiums are generally an allowable business expense for corporation tax, and employer-paid group life cover is not normally a P11D benefit in kind — so employees usually pay no tax for having the cover in place.
Registered vs excepted schemes — and the £1,073,100 allowance
Most group life schemes are registered schemes, set up under pension legislation. Since April 2024, lump sum death benefits from registered schemes count towards each individual's lump sum and death benefit allowance (LSDBA) of £1,073,100. Benefits within the allowance are generally paid tax-free; amounts above it can be taxed at the beneficiary's marginal rate.
For most employees that cap is comfortably out of reach. It becomes relevant for high earners — a £280,000 salary with 4x cover already exceeds £1.1m before counting any pension death benefits. That's where excepted group life policies come in: written outside the pensions regime, their payouts don't count towards the LSDBA. The trade-off is more complexity — excepted trusts have their own potential tax charges and need proper advice to set up and monitor.
| Registered scheme | Excepted scheme | |
|---|---|---|
| Best for | Most workforces | High earners near the allowance |
| Counts towards LSDBA (£1,073,100)? | Yes | No |
| Setup and admin | Simple, standard | More complex; advice needed |
| Typical payout tax | Tax-free within allowance | Generally tax-free; trust charges possible |
A common pattern in professional firms is a registered scheme for everyone, with an excepted policy layered on for the handful of people whose combined benefits approach the allowance. This is one area where specialist advice genuinely earns its keep.
Compare group life insurance quotes
What it costs and how underwriting works
Group life is the cheapest of the main insured benefits because it covers a single, statistically rare event. Pricing depends on the age profile of your team, the benefit multiple, and your industry — but for most companies it lands around 0.2–0.5% of payroll, noticeably less than group income protection and a fraction of the cost of private medical cover at ~£57 per employee per month.
Underwriting is light-touch. Schemes operate a free cover limit — often £1m or more even for small groups — below which every eligible employee is covered automatically with no medical questions, no exclusions for pre-existing conditions, and no individual assessment. Only employees whose benefit exceeds the limit answer health questions, and only on the excess. Schemes typically start from two or three employees.
As with health insurance, eligibility should be set by objective categories — all staff, all employees past probation, salary multiples by grade — rather than named individuals. Premiums are reviewed at each rate-guarantee period, typically every two years, and generally drift with the age profile of the team rather than with claims, because a single group life claim tells the insurer little about future risk. Comparing insurers at review is straightforward since the product is close to a commodity: the same trust, the same multiple, a different price.
What's often bundled in
Like income protection, group life policies increasingly come with support services attached. Most insurers bundle an employee assistance programme (EAP) — confidential counselling and helplines available to the whole team all year round, not just at the point of claim — and many add bereavement counselling and probate helplines for families when a claim does happen.
- EAP counselling. Typically structured telephone or online counselling sessions, plus legal and financial information lines.
- Bereavement support. Specialist counselling and practical help for the family and, often, affected colleagues.
- Everyday extras. Some insurers add virtual GP access, wellbeing apps or discounts, varying by provider.
Frequently asked questions
How much does group life insurance pay out?
Typically 2–4x the employee's salary, set by the employer when the scheme is designed. Some firms offer higher multiples for senior staff or let employees buy extra cover. The payout goes to beneficiaries via the scheme's trust, guided by the employee's expression of wish form.
Is a death in service payout tax-free?
Generally yes. Because group life schemes are written under a discretionary trust, payouts normally fall outside the estate for inheritance tax and skip probate. On registered schemes, benefits within the £1,073,100 lump sum and death benefit allowance are typically paid tax-free; amounts above it can be taxed.
How much does group life insurance cost an employer?
Usually around 0.2–0.5% of the payroll being covered — one of the cheapest insured benefits available. Price depends on the team's age profile, the benefit multiple and the industry. A young office-based team at 2x salary sits at the very bottom of the range.
Is group life insurance a P11D benefit for employees?
Not normally. Employer-paid group life premiums are generally not treated as a taxable benefit in kind, so there's usually nothing to report on a P11D and no tax for the employee — one reason death in service is such an efficient benefit to provide. Confirm unusual arrangements with your accountant.
What is the difference between registered and excepted group life schemes?
Registered schemes sit within pension legislation and their payouts count towards the £1,073,100 LSDBA; they're simple and right for most workforces. Excepted schemes sit outside the pensions regime, so payouts don't use up the allowance — useful for high earners — but the trusts involved are more complex and need advice.
Does death in service cover deaths outside work?
Yes. Despite the name, group life insurance pays out on death from any cause while the person is employed and covered — at home, on holiday or at work. It is not restricted to workplace accidents; a small number of policy exclusions may apply, but they are rare in group contracts.
Do employees need medicals for group life cover?
Usually not. Schemes set a free cover limit — often £1m or more — and every eligible employee below it is covered automatically with no health questions and no exclusions. Only employees whose benefit exceeds the limit are individually underwritten, and only on the amount above it.
Can a small business get a group life insurance scheme?
Yes — schemes generally start from two or three employees, with the same trust structure and free cover limits as larger groups. For a small team, cover is often surprisingly cheap: a handful of younger employees at 2–4x salary can cost less per month than one employee's health insurance premium.
What happens to death in service cover when an employee leaves?
Cover normally ends when employment ends — it's tied to being on the payroll, not to the person. Some insurers offer leavers the option to convert to a personal policy without medical underwriting within a set window, but this varies, so employees planning to rely on it should check the scheme terms.
Does group life insurance include an employee assistance programme?
Often, yes. Many insurers bundle an EAP with group life cover — confidential counselling, legal and financial helplines available to all covered employees year-round — plus bereavement support for families when a claim occurs. It's worth weighing bundled services when comparing otherwise similar quotes.