COVID 19 - Workplace Sponsored Death Benefits

One year on from  the first lockdown, the Office of National Statistics has revealed that 7,961 people of working age died with COVID 19 between March and December last year.* While this is a small proportion of the total deaths from the disease, the families of working age victims are more likely to suffer financially from  the loss of a loved one.

A workplace death benefits scheme can ease the financial burden and may cost less than you would expect.

GRID, which represents providers of workplace sponsored life cover, reports that its members paid out a total of £93million to 891 families of the victims of COVID 19 in 2020. The average lump sum received was £100,320 and the capital cost of dependant pensions £617,771 on average. 1

While some employers, particularly in the public sector, may offer uninsured lump sum death benefit schemes, these statistics show that only 1 in 9 families who lost a wage earner in 2020, due to COVID, were supported by an employer sponsored scheme.

Some individuals, with underlying medical conditions, perhaps those most vulnerable to COVID 19, may find it easier to get life cover through a workplace scheme than by buying an individual policy.

This is because insurers usually give every member a certain amount of cover without charging extra for it. Individual medical histories are not considered to the same extent as when applying for an individual policy. It is often possible for someone, turned down for an individual policy, to be offered some cover under a workplace scheme.

Average Cost 37p per Day

The average cost of an employer providing a lump sum of between one time and four times salary is only 37p per day, per employee, according to reinsurance giant Swiss Re. 

The cost per £ thousand is usually fixed for 2 years but employers can change insurers at any time or alter the benefits offered at each annual renewal.

Employees can be included in the scheme on joining or after a probation period to be agreed by the employer.

Tax Benefits

The cost of providing a workplace insurance policy is offsetable against corporation tax as a business expense.

It is exempt from insurance premium tax and is not a taxable benefit for employees.

In the event of a claim, lump sums can be paid out tax free in most cases. An ongoing dependents pension may be taxable as the income of the dependent.

By using a discretionary trust to distribute claims, the lump sum remains outside of the individual’s estate for inheritance tax. It can be paid swiftly without the delay of applying for probate.

Scheme members can express their preference as to whom the benefit should be paid by completing a simple form supplied by the scheme. If personal circumstances change the nomination should be updated.

State Bereavement Support

Help for families following bereavement was cut in 2017 and these are the benefits payable to the spouse or civil partner when someone of working age dies.

Surviving spouse or civil partner

Lump sum £

Monthly payment for 18 months £

No children

2,500

100

Children under 16, or 20 if in education

3,500

350

Source GOV.UK

Cohabitants do not qualify for any State help, but following a recent court ruling, those with children will get some help once the law is changed.

State bereavement benefits do not even cover the cost of the average funeral and unless families have made some private financial provision the loss of a breadwinner can spell financial disaster. 3

Employers have no obligation to provide benefits of this sort, but given the low cost of  group life insurance and the impact it could have on employees and their families,  it is something which more may wish to consider, especially if coming to work exposes staff to the extra risk of infection

Our Risk and Reward team are available to offer a full consultancy service to help employers consider implementing a scheme. If you already offer this benefit, we can review the value for money it offers employer and staff. Please contact your usual Aspira adviser, or email info@aspirafp.co.uk or call 0800 055 6585.

Kay Ingram                                   
Public Policy Director                             
LEBC Group

 *ONS Covid 19 related deaths between 9 March and 28 December 2020

1. Group Risk Development (GRID) Group Life sponsored claims circa £100 million paid out on Covid 19 related deaths in 2020 -March 2021

2. Swiss Re Group Watch 2020

3. An average funeral cost in the UK in 2020 was £4,417 – Sun Life

Please remember, no news or research item is a recommendation or advice to buy. Aspira Corporate Solutions is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. All information is based on our current understanding of taxation legislation and regulations. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts. 

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