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
Related Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions