Group Life Insurance is designed to provide valuable financial support to an employee's loved ones if they die. But there is an important question behind the policy that employers can sometimes overlook:
Who will decide who actually receives the benefit?
When an employee's personal circumstances are straightforward, that may not seem particularly complicated. But families and relationships aren't always straightforward – and when circumstances become more complex, the trust structure behind a Group Life arrangement can really matter.
For employers, one important consideration is whether to operate their own trust or, where available and appropriate, use a Master Trust or other professional trustee arrangement.
Why does the trust behind Group Life matter?
Group Life benefits are commonly paid through a discretionary trust.
An employee can complete an Expression of Wish form setting out who they would like to receive the benefit. This provides important guidance to the trustees, but it isn't legally binding.
Ultimately, the trustees must consider the relevant circumstances and decide how the benefit should be distributed.
That distinction matters.
Imagine an employee dies leaving an estranged spouse, a new partner, children from a previous relationship and other people who may have been financially dependent on them. Their Expression of Wish may also have been completed years earlier, before some of those circumstances changed.
Someone now needs to consider the available information and decide who should receive the benefit.
The question for an employer is: does your business want to be responsible for making that decision?
What is a Group Life Master Trust?
A Master Trust is an established trust arrangement covering multiple participating employers and overseen by professional trustees.
Rather than the employer establishing and administering its own trust and taking on the associated trustee responsibilities, the professional trustees undertake the relevant trust governance and make decisions about the distribution of benefits when a claim arises.
The precise arrangements and availability vary between providers and schemes, so a Master Trust isn't automatically the appropriate solution for every employer.
But it can remove a significant responsibility from the business.
“But don't we lose control?”
This is an understandable concern.
Some employers can initially perceive moving to a Master Trust as giving up control. But it is worth considering what that “control” actually involves.
If the business operates its own trust and its trustees are responsible for determining beneficiaries, they may need to consider circumstances such as:
- an estranged spouse or partner;
- children from previous relationships;
- financial dependants;
- significant changes in the employee's circumstances;
- an outdated Expression of Wish; or
- several people who believe they should receive the benefit.
The people making that decision may have known the employee well professionally. That doesn't necessarily mean they will feel equipped to investigate sensitive family circumstances and determine how a potentially significant financial benefit should be distributed.
There is a human consideration too.
Those decisions are being made at a time when a family is grieving, potentially with different individuals providing conflicting information or holding different expectations about what the employee intended.
Where professional trustees can help
With a Master Trust or appropriate professional trustee arrangement, beneficiary decisions sit with trustees experienced in dealing with Group Life claims and the circumstances that can surround them.
They can consider the Expression of Wish alongside other relevant information before deciding how the benefit should be distributed.
In our experience, Group Life claims can involve family circumstances that are considerably more complicated than an Expression of Wish form might initially suggest.
It is in those situations that the distinction between an employer making the decision and an experienced professional trustee doing so can become particularly important.
Employees should nevertheless be encouraged to complete and regularly review their Expression of Wish. You can read more in our guide to Expression of Wish forms and Group Life Assurance.
Is a Master Trust right for every employer?
Not necessarily.
Different Group Life arrangements can have different trust structures, and Master Trust availability and terms can vary between insurers. Some employers may also have good reasons for maintaining their own trust or using another trustee arrangement.
The important thing is to make the decision knowingly.
An employer shouldn't retain its own trust simply because that is how the scheme has always operated or because retaining control initially feels more comfortable.
Instead, it is worth understanding what responsibilities sit with the trustees and whether the organisation remains comfortable carrying them.
If you're unsure about the type of trust supporting your existing scheme, our guide to [Group Life Assurance trust structures] explains some of the different arrangements in more detail.
Five questions to ask about your Group Life trust
If your business already provides Group Life Insurance, consider asking:
- Do we know what trust structure currently sits behind our Group Life scheme?
- If our business acts as trustee, who would actually make a beneficiary decision following an employee's death?
- Are those people comfortable taking on that responsibility if the employee's family circumstances are complicated?
- Do we encourage employees to keep their Expression of Wish information up to date?
- When did we last review the trust structure alongside the wider Group Life arrangement?
If you're unsure of any of the answers, that doesn't necessarily mean your current arrangement needs to change. But it may be worth reviewing it.
At Clear, we can help employers understand how their existing Group Life arrangement is structured, what responsibilities sit with the business and whether the current approach remains appropriate for their circumstances.
If you haven't reviewed your Group Life trust for some time, speak to the Clear Employee Benefits team about reviewing your current arrangement.
