Kathryn Knowles  00:06

Hi everyone. We’re on season nine, Episode 11, and today it’s just me, and I’m going to be taking you through some key points of group life insurance. This is the practical protection podcast. I you.

Kathryn Knowles  00:25

So Group Life Insurance is fantastic, and it’s definitely something that I suggest that people look into, being able to advise on. There are times that things can go not as expected with group in terms of when we’re looking at Group Life Insurance, it’s we are looking at advising on the life insurance in general, if we don’t do if we’re not a full financial advisor, and doing every single thing that we can do in terms of the financial plan. But like group life insurance in itself, can have an influence on pensions and some other things as well. So we do need to make sure that we are understanding lots of different areas when we’re looking at the group side of things, there are industry exams that you can sit that can help you do also have the industry body grid that you can be a part of, that you can access in terms of giving you support, in terms of providing advice. But hopefully today, I can give you some really key bits, just so that you know a bit more about how the products work, things that you would maybe look out for in terms of the advice, stuff like that. So with Group Life Insurance, we are looking at an employer and employee relationship. So we are talking people who are receiving the paye and can be shown to be as an employee on that payroll. You can sometimes find that people maybe want to do something like the group life insurance, but maybe they are just at a point where that they’re just set up in such a way that they are more sort of taking dividends and not taking the PAye. And no matter what, we need to have that pay that that is just part of the rules. To say this, yes, we are showing that this person is definitely eligible to be having, you know, potentially having cover through the company. And I do see, and I have heard, some differences in terms of training in terms of group insurance. I just want to clarify some bits when it does come to the group side of things. So when you are offering Group Life Insurance and advising on it, you do not need to ensure the whole company there’s, there’s no requirement for that at all. So, you know, there’s 30 people in the company, let’s say you could be ensuring just two of them. You could be ensuring 17. You could be ensuring all 30. And it depends, it’s completely dependent upon the company structure and the categories that you set up. So one of the very first things is that we’re going to be establishing Who are we wanting? To ensure you know, what is this company wanting to look at? And a lot of the companies in the UK, I think about 80% of the companies in the UK are SMEs. And so a lot of the time you are speaking often to the company directors. It might be that they just want to ensure the company directors, they might want to be doing it for their whole team. There’s lots of reasons to be doing it. Group Life is seen as a potential positive retention tool. It is sort of saying to your team, you know, thank you for your service to us. If something happens, we want to make sure that your loved ones are okay financially. So it is something that’s quite popular, and also one of the more popular ones, because the premiums are paid for by the company and can be offset against corporation tax, which is always something that the company directors are generally quite happy if you’re able to do it that way. And so in terms of the categories, so it might be that we just have one category for the whole company. So we might just say all staff absolutely fine. You know, you’re going to ensure everybody, and they’re all going to have the same type of cover and level of cover. That’s a key thing as well. Everybody in the same category has the same level of cover, but we might do it differently. We might do and I’ve got an example at the end as always, to show you how we do it differently. Sometimes it might be that the directors want to have the most cover and the longest cover, so they want it to last for as long as possible, you know, potentially all the way to age 75 it could be that we then do a level. So category two would be managers, and maybe they don’t get as much cover as the directors. Maybe it goes to state pension age. There’s lots and lots of ways to build it. And life insurance is the group life is one of the simpler ones to do. It gets quite fun when we get to group income protection. I’ll be doing that one soon. Ish, because there are many, many options when we are looking at that, and things to consider as the employer yourself, depending upon the options there. But Group Life Insurance, pretty in general, pretty straightforward. It’s how much we’re going to be insurance Percival, how long do we want to be insuring them for? And we will probably do different categories most of the time, especially with people I’ve spoken to, most companies, the directors do want to have the high amount of cover themselves and everybody else to have to have less. I have actually had it where I’ve had directors say, I want everyone to have the same, you know, everyone’s same as me. I’ve had it where directors have said, Actually, we’re not bothered. We don’t really need it, but we want to make sure. Our staff have it because, you know, we’re okay financially, but with the staff, we want to make sure that their their families are okay, which is, you know, any which way, whatever suits the company, works well. So the key thing as well, when we’re saying about the categories and things like that, is that we have to with group. We have to be careful what’s known as anti selection. So let’s take an example of we have four directors of company. One of them is really ticked off. The other ones is looking to jump ship, and they’re wanting to put some insurance in place. And they’re just like, look, we just the other three directors are just like, we just don’t want to ensure that person is just No, just no. We don’t want to. And simply, when it comes to this, they’re going to have to or else it is seen as anti selection if that person is eligible for that category, if you are saying directors of the company are going to be getting this level of benefit, then it doesn’t matter if we’ve fallen out with them. It doesn’t matter if they’re about to leave. Doesn’t matter if they’ve not pulling their weight. If they are eligible based upon their employment contract, then they are going to be on the cover. So we just have to be quite firm with that as an advice point of view, that that is what’s happening. We can’t have any hidden employees. The other thing, there’s quite a few things can have influence. Obviously, age, everything like that, can have an influence. What’s interesting as well is that in the group space, gender can still make a difference. You will have to put in if people are male or female. If you do have people who are transgender, then unfortunately, you do need to or people who are non binary, who potentially have they then pronouns. Unfortunately, we will need in the group space to be putting them down as male or female, which can be very tricky and not easy, but unfortunately, that is the way the systems work at the moment. And unfortunately, I did have a situation not long ago where I was doing some life insurance for a company, and the the the insurer insisted that we put the person’s gender as their physical gender at birth and not their actual gender. So if any insurers are listening, that is something that obviously is, is not something that is seen as a positive, and obviously it would be much better if, if it wasn’t that case. So so we do have the gender aspect. Obviously we have age smokers, stances doesn’t come into it, a key influence, as well as post code. So insurers have, in the life space, like a catastrophe limit, to basically say if something really, really, really bad happens in a certain location, they will guarantee payouts up to a certain amount, and that they have those, in a sense, reserves to be able to pay up to that certain amount. It’s usually a huge, you know, silly amount of money. But it does mean that at times, what they will do is they’ll say, actually, we have ensured as much risk as we can take in that location, because if there was a catastrophe. So we are talking about, obviously, natural environmental disasters. We are unfortunately talking about very serious events as well, obviously, criminal acts, terrorist acts, potentially, then they’ll say, Well, we can’t ensure this new company here because of the fact that we’ve already, we’re already at the limit if something happens right in that location, sorry excuse me. And and what we then find is that we’d have to just use a different insurer that didn’t have the Japanese mismatch insurance in that place. And much risk held up in that location. Employees abroad can really influence it as well. So we are usually talking about UK based policies and UK based firms in general, and but we can sometimes have employees who are outside of the UK that we might wanting to ensure, you can find that insurers have like, a bit of, like, an upper limit. So they might say, we can ensure we can offer, potentially, if there’s an employee abroad, as long as it’s less than this percentage of the total employee base. So you know, if you I had it at one point where I had a firm, there was 10 people. One of them was based outside the UK, and the insurer said no, because actually, when you look at it, actually no, it’s 10, have I got that right? It was 10 people anyway. So they said basically 10% of the employee base, even though it’s just one person, was outside the UK, so they couldn’t cover and for with that insurer. So just be mindful of that. There are sometimes the locations outside the UK where they said, you know, we’re not, we don’t mind too much because of, obviously, they’re the financial institutions there, the government’s there, the, sorry, the just generally, the communities there, they’re not too concerned about. There are certain locations that they will be very, very concerned about, probably very similar to see in personal insurance. But just be careful in terms of your percentages. There other key thing with group is registered versus accepted. This has been sort of like an age old thing with group. As to which one do you go for a few and. Advisor. So

Kathryn Knowles  10:03

it was really up to you your compliance and the firm as to what you want to be doing. So registered traditionally. So I’m going to say traditionally, and give me a second, because it has changed really not that long ago, and so you used to have difficulties with payouts on the registered scheme, because the payout would be added to the person’s lifetime pension allowance. So this is where the pension file comes in. And so that could mean that if it’s added to that, then if they went over at the time it was 1,073,100 pounds, then it would be taxed the amount above that. But the really key thing on the registered, because obviously, many people don’t have pensions of that size. Quite a lot do, but lots and lots don’t. So quite lots of people aren’t too concerned about that side of things. But the thing with the registered is that it would eradicate any protected pension status that a person had, which can be very, very costly, extremely costly. So the those rules don’t apply. Now. It’s changed. However, as an advisor, if you are coming across a group scheme, even if you’re advising somebody, and they say, Oh, well, I’m covered by this, you know, death in service cover. And you’re also speaking to them, because you’re doing the full, like, review of everything, and you’re like, Well, okay, and they have some protected pension status as well. You might want to just subtly be digging into, can I just know a bit more about that death in, you know, service benefit that you have double check? Was it registered? Because obviously it’d be nothing that you’ve done. I’m saying if you’ve just come across this person, but it might be that you come across that they’ve lost their protected pension status, which is where everything is going to massively change. And we need to be trying to be on top of that as soon as possible. It isn’t possible to get that protected pension status back. So there’s going to be to be a huge change in terms of the approach to the financial plan for this person. So the this rule was removed for for registered life insurance schemes, and I have to say, with the registered and accepted, you either get an insurer where right at the beginning, when you do the quote, you choose registered or accepted, or sometimes it’s a tick box later on. So it’s just get familiar with the insurers applications and but it is really important to know which one you’re doing. So now, instead of it being the whole thing to do with the lifetime pension allowance, it’s now all linked with the on the registered side, the lump sum and death benefit allowance, which is very, very technical, all this stuff. So I would just say, get some training from an insurer. You can actually, if you put in Group Life Insurance and lump sum and death benefit allowance, you will find some guidance from insurers on Google. And you know, it’s really, really good. And so there is potentially still some taxation once we’re getting over certain amounts. I believe it is still that million, 70,100 but it’s all to do with, I believe it’s uncrystalline funds. It’s the full death benefit allowance that’s going to be paid. It’s some other things. So it’s just being really mindful still that, you know, there is that potential, that there could be some taxation, but depending upon that death benefit allowance and that person’s assets, now, in terms of the trust, and there’s no taxation on the trust, which is and the reason I’m saying this is because there is potentially taxation on the trust in the accepted route. So the accepted route has always been, I’ll say, obviously, each firm to their own. The accepted route is my preferred route, and it is the route that I would tend to be suggesting for my advisors to be using, just because I’m, I’m personally, I’m not advising in the pension space. I’m not doing all these things. And when you are doing these policies, you can be, you can be ensuring a small firm to people. It’s, you know, it could be, though, that you’re insuring a firm with hundreds, and especially on the hundreds, you do not know who in there has these protected pension statuses, all these different things, their assets, you know, and everything like that. And you just don’t know what could potentially happen down the line. So for me as an advisor, I prefer to go accepted, because the claim that is paid doesn’t get added to this lump sum and death benefit allowance. It’s kept away. It doesn’t go into that at all. But there is then a bit of a caveat, and so we need to make sure always with our clients, we need to give them the caveats and give them the option. I The majority of the time, I would say a good 90, 95% of the time, when I explain the differences between accepted and registered to people, they do agree with me that accepted is the better. But you do get some people who go, do you know what registered? I’m just, I’m happy with that. So the accepted route, the claim amount, isn’t being added to our assets already, which is brilliant, but there can be a bit of an issue in terms of the trust sometimes, because if a claim is paid and it sits in the trust on the 10th anniversary of that, you know the it coming into effect. Yes, it could. It could be claimed the money that sat in the trust. And that’s just one of those rules in the background. But it happens every 10 years. So you know, if we did something on the first of October 2024 then the first of October 2034 if there’s money in the trust, then it could be taxed. First of october 2044, if there’s money in the trust, it could be taxed. Now, there are sometimes different ways of things happening. I know sometimes trusts in like because if you do a master Trust, which, again, I would just say, for me, I would say, use the master trust. It’s just so much easier. It’s it all sits within the show as systems. You then don’t need to get the solicitors involved. Obviously, as always, speak to your compliance you know, and see what they feel is right, and different things like that. And obviously you might have your own preference for doing something slightly different. However, Master trust, it’s just sat there again you tick a box, or you choose it at the very beginning of the application quotation process, and it’s just it’s just it’s done and dusted then, and sometimes, you know, these trusts are redone. And so it might be that the that that 10 year anniversary kind of date changes slightly, or moves around a little bit, but that is, that’s, in a sense, that’s the negative with the accepted is that that potential, I mean, the likelihood of that claim being paid and it being sat there on the exact date. So it’s the exact date, it’s not the year, it’s that one day of it being sat in there on that 10th anniversary is quite low compared to the other side, where, you know, in the registered we might get, obviously, everything added to the assets and potentially getting taxation whatsoever certain levels. So that’s a really key thing. That’s one of my key things when I’m doing training on group insurance is like registered and accepted. Make sure you know what’s going on there.

Kathryn Knowles  16:51

So applications can be quite different between different insurers. Some ask medical questions. Some don’t. Almost all of them ask about travel to certain locations, you’ll usually get a thing saying, Do they travel either to any of these countries, or do they travel outside of our accepted country list? And you have to have a quick look most of the time, that isn’t the case, but it is just worth obviously, being mindful of that with Group Life Insurance, as we get with most of the group insurances, we have what’s known as a free medical underwriting limit, and that means that the insurer will say, right, we will ensure you up to this level of cover. And you know, we you don’t need to tell us anything that we’ve not asked about. So some insurers will ask about cancer, heart attack and stroke within certain time frames. So obviously they’ve already asked that, but they’re not asking about anything and everything. They’re not asking about any and every sport and things like that. Obviously they are asking about the occupation. They asking about travel. So you know, we know that that’s in there anyway, because I haven’t said already, but yet, they will be asking about occupation and what it is you do, and what industry you’re in, and things like that and that. Again, can influence rich insurer you which insurer use, but we have a free medical underwriting limit, and let’s say it can be that the insurer will say, right, for every person, for every person insured by this scheme, we will insure them for 500,000 pounds. And you know, we’re not going to ask any additional we’re not going to go through like, a full application, like we would do on a personal insurance kind of things. And the reason is, is because it’s called group insurance, they’re sort of like assuming, you know, we’re ensuring a group of people, some of them might have things that, you know, we’d usually ask about in personal side of things, some of them won’t. So we’re just going to take it as a as a given that we’re only going to ask some questions. It might not be that your clients need, you know, 500,000 it might be that they need a lot less brilliant. It might be if we’re doing certain multiples of salary, which is often how death in service can work, it’s either multiples of salary or lump sum benefits. And that it might be that for some people, they go over this free medical underwriting limit. And that’s that’s fine as well. We just need to know how that works. So let’s say we have, we’ve got, yeah, there’s three medical under waiting limit of 500,000 pounds. But one of our people in our group scheme is actually based upon the category is eligible for 600,000 pounds of insurance. So the insurer in this point goes, right, okay, well, we’re covering the 500,000 but if you want the extra 100, then we are actually going to ask some extra medical stuff on that X. Stuff on that extra 100,000 which is, again, fine. And you then have a choice. You can either go for that extra 100,000 which is where you would fill in the medical information, things like that, or you can say, Do you know what? Actually, I’m not too fussed about that extra 100,000 it might be that it’s just been a multiple of salary that’s just put them happens put them over everybody else. And you can find that people who obviously run businesses are very, very busy and might decide that they do not want to be going through that process, and they’re quite happy with just staying at what they’re staying at. And either which way is fine. Obviously, we would encourage people to go for the amount that they can. Get to go for the full amount, but we do need to be aware of how it works in terms of the underwriting of that extra 100,000 so it could be that it’s underwritten, and there is no changes, and they’re given a full 600,000 brilliant. That’s what we were looking for. It might be that they’re rated. So it might be that something is in the application that says, Do you know what? Actually, because of that, we’re going to have to increase the premium. And what’s important to say is, if that happens, that happens on only on the 100,000 pound extra that we’ve gone for, so the 500,000 that they are already covered for isn’t affected, is the extra 100,000 that would be affected. And let’s say somebody goes for it, and they’re declined the cover for some reason, I could say it could be health, it could be sports, could be anything that is in there. Now, if they were declining the extra 100,000 again, they would still be covered for the 500,000 but they wouldn’t be covered for the extra 100,000 so it is very much worth bearing that in mind. One of the reasons that we say to bear that in mind as well is that with group insurance, the insurers usually guarantee their rates for every for about three years or so, and these are annually reviewable premiums. So they do increase, generally increase each year. Because obviously, the workforce tends to get older, not always the case, but you know, and people can move or they might get more employees, salaries might go up. So, you know, they can, can change, but it will be annually reviewable. And, and what we can find is that, you know, it’s a really good idea, obviously, to be checking the market is another insurer a better price now, because it is kind of a thing if you do, tend to move people around across the market, depending upon their needs and the the pricing that we’ll see. And, but if somebody has been rated in that policy, if somebody has been declined on that extra amount above the free medical underwriting limit, then you’re going to find that it’s very unlikely that you’re going to be able to move that to a cheaper insurer or a better insurer, for whatever reason, if whichever reason you’re thinking of moving them because of the fact that they don’t want to, generally, the insurers don’t Want to take on a known risk, in a sense, in the in the group space and so so it wouldn’t be able to be moved, which does mean then we are kind of stuck with an insurer, so we’ll just have to accept those reviewable premiums going forward if we are wanting to continue with the insurance. Obviously, everything is individual to each company. And I say, we do want to be if somebody, if we’re suggesting to somebody, to be able to get a certain amount of cover, and it does put them over those medical underwriting limits. We do ideally want to to get them to be underwritten because of the fact that we’ve said that that’s a good amount of cover for them. So we wouldn’t want them to not have that, but it is just something that you want to be mindful of. As I say, you know, we’re speaking with smaller firms, it’s very likely that we know those additional things and factors that might be coming in. But if you are speaking to firms with hundreds employees, and we’re suddenly getting medical underwriting from lots of people, obviously that there’s no there’s no requirement for people to tell their employers about certain medical conditions, and so then the employee might have no idea. And then obviously, we could suddenly have all these things suddenly coming out, and different things and and we just need to be very, very mindful of that. Obviously, with a firm of hundreds of people, usually speaking to the HR team, they should be quite familiar with group cover. But you could talk about all of these things because, you know, there is some HR elements in there, in a sense, if somebody goes for some additional cover, they’re then declined. It then comes through that’s declined. Who’s seeing that? Who’s then going to know? Do people then know? Well, actually, this person’s either, if we don’t know that they’re doing something super sporty, then we possibly start like leaning to that knowledge of saying, well, this person maybe has a health condition that’s quite, quite strong for the insurer to have made that decision, and there’s a knock on repercussions. Sorry again, of those of those decisions coming back. Okay, so have a case study. Thank you for bearing with me while I kind of rambled through that very, very quickly. So as a case study, we had a business consultancy of 79 lives, and we did the directors and managers at eight times salary to age 75 we had the permanent fixed term staff for not fixed term, so for a permanent fixed contract, there we go, fixed term, a permanent staff of three times salary to state pension age. We had contract staff a lump sum of 20,000 state pension age, and that came to 170 pounds per month to ensure all of those lives. So, you know, we can find that it’s actually a really, really cost effective solution for people. You will find as well, in terms of it, that, especially at certain sizes, that the insurers tend to price more based on, like, an average age rather than people’s actual ages. So you tend to find, obviously, if the workforce is typically younger, that the pricing would be better than, say, if the workforce is generally older with just a few younger people, because they will be averaging it out. So it’s definitely, I think it’s a brilliant product to be able to advise on. We do see times where people have maybe made decisions. Group wise, that aren’t the best of solutions. So it’s definitely one where I would strongly suggest that you get some official training and sit the industry, sort of like exams on group, just so that you have that backing behind you as well. And obviously it gives you all the technical aspects in the background that you need to so thank you for listening, everybody. Next time I have Matt RAM back with me, I’m going to be talking about fibromyalgia and protection insurance. As always, you can visit the website practicalhydrprotection.co.uk, to be able to access any of our episodes, and you can get your CPD certificate on the website there too. Thanks to our sponsors, the Octomembers. Thank everybody and speak to you soon you.