UK: Looking at Life Assurance Benefits

Last Updated: 18 November 2004

Article by Nick Clapp

The provision of what should be one of the more straightforward employee benefits to provide and to administer can have more complications when providing this benefit to your executive staff.

With the advantages of a company life assurance scheme (relatively cheap premiums, removal of medical requirements for the most part on individuals) it is one of the standard benefits offered to executives and should form a part of any executive’s compensation package. In this article, solutions for the current taxation environment are explained, as well as looking ahead to the implications of tax simplification and the possible impact on executives’ life assurance.

Unapproved Benefits

For the vast majority of employees, the provision of any company life assurance benefit is currently through an approved group life assurance scheme. This ensures tax relief is available on both the lump sum benefit paid to beneficiaries and that premiums do not incur a P11d tax charge for employees. There is a limit on the amount of lump sum and death in service pension benefit that can be insured under an approved scheme. High earning employees who commenced their employment after 1 June 1989 are restricted under an approved scheme to a lump sum life assurance benefit of four times the Earnings Cap. The Earnings Cap for the financial year 2004/2005 is £102,000, this amount being reviewed in the Budget annually. The Earnings Cap was introduced in June 1989 and therefore, all members who were working for their current employer at that time are exempt. Limits on death in service pensions can be more convoluted, however essentially the overall maximum is 4/9ths of the Earnings Cap for affected employees.

Benefits can often be promised to members on the basis of total uncapped salary. Executives’ needs for life assurance is linked to their lifestyle and to exposures (such as mortgage payments) that they will leave their dependants. Such exposures and lifestyle levels are normally related to their full uncapped salary. Whereas executives have time to review their finances and prepare for retirement, life assurance provides no such luxury. Our experience is that most employers look to provide benefits based on full salary, hence the need for unapproved benefits. With unapproved policies being a P11d tax chargeable benefit, employers might want their employees to make a conscious decision if they wish this benefit to be provided.

Implications of Insuring Unapproved Benefits

Under the 2003 Budget, the legislation imposing a tax liability on any secondary death under a policy has been amended, and "Excepted group life policies" are now available. Employers need to be sure that the criteria for accepting a group policy are met. Many insurers have been slow in responding with group terms for unapproved benefits. Providing individual polices has both implications on the price and medical underwriting implications. You should query from your advisers if any special arrangement is available to them for unapproved life cover. It is possible to negotiate with a specialist insurer policies that neither give rise to a second death tax liability nor require individuals to submit medical evidence provided a simple declaration can be signed by the employer declaring the individuals involved to be fit and healthy. This provides the best of both worlds.

Benefit Levels

Usually, employers provide life assurance benefits linked to a multiple or proportion of salary. As such, differentiation for executives is usually provided through their salary differentials. An increased benefit multiple is usually therefore seen as unnecessary. There are other, more logical ways of targeting specific executive compensation than life assurance. Where there is a separate executive pension scheme, it may be appropriate to provide different life assurance benefits.

Acceptance of Benefits

For executives, benefits can often exceed the free cover level available under the life assurance scheme established by the company. This is the level of cover an insurer provides before making extra cover subject to the provision of satisfactory evidence of health. Individual medical underwriting is both tiresome for individuals and, more importantly a potential exposure to the employer if cover is declined. Even if a caveat on the contract of employment exists, this is not ideal for the employee and makes the scheme less attractive to insurers when looking to switch cover (in effect a company is having to declare a substandard executive life). However, a specialist adviser with sufficient influence in the market can help a company obtain specially tailored solutions, often effectively removing the underwriting burden altogether.

Tax Simplification

The impending Tax Simplification Rules will have an immense effect on any existing unapproved life assurance benefits with effect from 6 April 2006. Essentially, a lump sum of up to £1.5 million will be able to be provided without tax implications (a major increase from the four times Earnings Cap limit). Furthermore, there is no limit on the death in service pension benefit that can be paid. With unapproved benefit incurring a P11d taxation charge, such policies should be reviewed prior to the renewal date preceding 6 April 2006 (which gives limited time).

Before amending benefits it should be established whether the current insurer will provide any increased benefit and the employer is not increasing its uninsured exposure. In addition, a greater flexibility can be made to the benefits offered under the new rules. As examples, will a greater tax-free lump sum be insured to replace a portion of any death in service pension which would be taxed as income? Is a flat benefit for executives of, for example £750,000 simpler to administer than the multiples of salary?

Key employees will usually place a high importance on their life assurance cover and a periodic review of the arrangements put in place by the company is essential. With the changes in legislation taking effect under the "tax simplification" banner, it is imperative too that companies explore with their advisers the options and implications well before 6 April 2006 in order to ensure that arrangements can be put in place in time.

Nick Clapp

Deputy Practice Head, Aon Consulting Risk Benefits Practice

Authorised and regulated by the Financial Services Authority

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.