Insurance explained

Group insurance for UK employers: how it works

Reviewed by the Apex broking team · Last reviewed 2026-10-19

Group insurance is cover an employer buys under one policy for a defined group of employees, typically life, income protection, critical illness and medical benefits. It matters because how each scheme is set up decides who receives the money, how it is taxed and who is actually covered.

Part of: Commercial insurance

In short

Group insurance covers employees under a single employer policy. The main types are group life (death in service), group income protection, group critical illness, group private medical insurance, and dental or cash plans. Members are usually accepted without medical questions up to a free cover limit. Tax treatment differs: group life is set up as an excepted policy under ITTOIA 2005 or within a registered pension scheme, group PMI is a benefit in kind reported on P11D, and income protection benefits are taxed as earnings. Unlike employers' liability insurance, which is compulsory, group risk cover is voluntary.

What group insurance is and how it works

Group insurance (often called group risk when it means life, income protection and critical illness) is a single policy, or a trust arrangement around one, that covers a defined class of employees. The employer is usually the policyholder or the trustees are, and the cover is priced on the group as a whole, not on each person's health.

The main types are:

Group life (death in service): a lump sum, commonly a multiple of salary, paid if an employee dies while employed. It is set up either under a registered pension scheme or as an excepted group life policy.
Group income protection: GIP replaces part of an employee's salary during long-term sickness or injury, after a deferred period such as 13 or 26 weeks. Benefits are usually paid to the employer, who passes them on through payroll.
Group critical illness: a lump sum paid to the employee on diagnosis of a defined serious condition, subject to the policy definitions.
Group private medical insurance: group PMI pays for eligible private treatment of acute conditions.
Group dental and health cash plans: a dental plan or cash plan refunds everyday costs such as check-ups, optical and physiotherapy, up to annual limits.

Eligibility is set by the employer and written into the policy: for example, all permanent UK employees under a set age, or a defined grade. Insurers commonly accept everyone in the class without medical questions up to a free cover limit. Anyone whose benefit is above that limit may need to give medical evidence before the excess is covered. HMRC's guidance on excepted group life policies expressly allows a limit on death benefits where it applies equally to every death, and gives a free cover limit as the example (IPTM7030).

Tax treatment: what HMRC says

Tax treatment depends on the type of cover and how it is set up. The points below come from HMRC's manuals and GOV.UK; individual circumstances vary, so check with your accountant.

Excepted group life policies must meet the conditions in sections 480 to 482 of the Income Tax (Trading and Other Income) Act 2005. Under section 481, the policy may pay only death benefits of a capital nature, with no surrender value beyond a refund of unexpired premium. HMRC's inheritance tax manual describes these schemes as set up by the employer under trust, outside any registered pension scheme, with the trustees deciding which family members or dependants receive the lump sum. Since 6 April 2006 these are relevant property trusts, but HMRC notes that the ten-year charge usually produces no tax because the trust normally holds no value.
Registered group life pays through a registered pension scheme. From 6 April 2024, relevant lump sum death benefits are tested against the deceased member's lump sum and death benefit allowance, which HMRC gives as £1,073,100 unless a protection applies.
Group PMI is a taxable benefit. Under Part 3 Chapter 10 of the Income Tax (Earnings and Pensions) Act 2003, each covered employee is charged on the premium paid for them and their family, less anything they make good (EIM21762). Where the employer arranges and pays the provider, GOV.UK says to report it on form P11D and pay Class 1A National Insurance. The same GOV.UK guidance covers dental treatment and insurance.
Group income protection: HMRC says the right to receive sick pay under an insured scheme is not itself a benefit chargeable under the benefits code, while sick pay funded by the employer is taxable as earnings (EIM06410). Where employees pay part of the premium from taxed income, the matching share of the benefit is tax-free (IPTM6120).

Some health items are exempt. HMRC's HS207 helpsheet lists one health screening and one medical check-up a year, recommended return-to-work treatment up to £500 in a tax year, and welfare counselling available to all employees.

Types of group insurance at a glance

Typical position only, always subject to how the scheme is set up and the policy terms.

Type	What pays out	Paid to	Typical tax treatment
Excepted group life	Lump sum on death in service	Trustees, for family or dependants	Set up under ITTOIA 2005 s480-482, outside a registered pension scheme
Registered group life	Lump sum on death in service	Scheme trustees or administrator, for beneficiaries	Lump sum tested against the lump sum and death benefit allowance
Group income protection	Monthly benefit after the deferred period	Usually the employer, then the employee via payroll	Benefit taxed as earnings through payroll
Group critical illness	Lump sum on diagnosis	Employee	Depends on how the scheme is set up; confirm with your accountant
Group PMI	Cost of eligible treatment	Hospital or employee	Benefit in kind on the premium; P11D and Class 1A
Group dental / cash plan	Refunds up to annual limits	Employee	GOV.UK says employer-paid dental insurance is reported on P11D; confirm cash plans with your accountant

What it means in practice

These scenarios are illustrative only.

Death in service: an employee covered at four times salary dies. Under an excepted policy, the trustees take account of the employee's expression of wish and pay the lump sum to a partner. If the benefit was above the free cover limit and the employee never gave medical evidence, the payment may be capped at the free cover limit.
Long-term absence: an employee is off with a back condition. After the 26-week deferred period, GIP pays a proportion of salary to the employer, who runs it through payroll. Many insurers also offer rehabilitation support to help a return to work.
Leaving the scheme: a member leaves employment. Some group life and PMI policies include a continuation option letting the leaver take out individual cover without fresh medical underwriting, within a set window. It is not a guaranteed feature, so check the policy.

Group risk vs employers' liability insurance

Group risk and employers' liability are often confused because both relate to employees, but they do different jobs.

Employers' liability is compulsory. GOV.UK says you must have employers' liability insurance as soon as you become an employer, with cover of at least £5 million, and you can be fined £2,500 for every day you are not properly insured (limited exceptions apply). See our guide to employers' liability insurance.
Group risk is not compulsory. No law requires an employer to buy group life, income protection, critical illness or PMI. It is an employee benefit, though once promised in a contract of employment the employer may be bound to provide it.
Fault vs no fault: EL responds when the employer is legally liable for an employee's injury or illness caused at work. Group risk pays on the insured event, whether or not anyone was at fault and wherever it happened.
Other related covers: group personal accident pays fixed benefits for accidental injury, and key person insurance protects the business, not the employee's family.

What to check

Is group life set up as an excepted policy or under a registered pension scheme, and does that suit your highest earners?
Who is eligible, and does the definition match your contracts of employment and offer letters?
What is the free cover limit, and has anyone above it been asked for medical evidence?
For GIP, what are the deferred period, benefit level, definition of incapacity and payment term?
Are trust deeds, expression of wish forms and member data up to date?
Is there a continuation option for leavers?
Are PMI, dental and cash plan premiums being reported correctly to HMRC?

Sources

Frequently asked

What is group insurance for employers?

Group insurance is cover an employer buys for a defined group of employees under one policy. It commonly includes group life (death in service), group income protection, group critical illness, group private medical insurance and dental or cash plans. It is priced on the group as a whole, and members are often accepted without medical questions up to a free cover limit.

Is group life insurance a taxable benefit?

Group life is usually set up either as an excepted group life policy under ITTOIA 2005 sections 480 to 482, held in trust, or through a registered pension scheme. Lump sums from registered schemes are tested against the lump sum and death benefit allowance of £1,073,100. Confirm the treatment of your scheme with your accountant.

Is group private medical insurance a benefit in kind?

Yes. HMRC treats employer-paid group medical insurance as a taxable benefit. Each employee is charged on the premium paid for them and their family, less anything they make good. Employers normally report it on form P11D and pay Class 1A National Insurance on its value.

Is group income protection compulsory?

No. Unlike employers' liability insurance, which most employers must hold by law, group income protection and other group risk covers are voluntary employee benefits. If you promise them in a contract of employment, though, you may be contractually bound to provide the benefit, so match your policy to your contracts.

What is a free cover limit?

A free cover limit is the level of benefit up to which an insurer accepts each eligible member of a group scheme without medical evidence. Above it, the member usually has to complete health questions before the extra cover starts. If they do not, the benefit may be capped at the free cover limit.

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Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances, and it does not guarantee that cover will be available or on what terms.