Self insure death in service?

who to get advice from?

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Hi all,

As a chain of care homes, we are looking at offering a death in service benefit to our staff. Unfortunately, due to the fact that no-one seems to want to have anything to do with insuring care homes at the moment, we're unable to get an affordable death in service policy from an insurance company. So, we're looking at whether we can self-insure.

Obviously we should take some advice on how to do this and how to structure it so that it's legal and tax efficient, but I'm not entirely sure who to get the advice from! I'm not necessarily after personal recommendations - it's more whether it's a question for a solicitor (and if so, what sort of solicitor), or an accountant, or someone else entirely. Has anyone any thoughts that might point me in the right direction please?

Thanks,

adf2410

Replies (13)

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paddle steamer
By DJKL
11th Oct 2021 14:48

Have you considered that as this will likely be an unfunded scheme you will have all the actuarial implications that will flow, and the impact these may have on distributable reserves etc, accounts disclosure, similar ?

Most death in service benefits gets rolled into a DB pension scheme, well certainly my wife's does, have you considered this route? (All DB schemes are, imho, not for the faint hearted.)

I would talk to an company who manage DB schemes about likely contribution levels and management costs, the world used to be awash with them when I started in the 80s (My first ever audit was 6 DB schemes managed by Alexander Stenhouse in St Vincent Street, Glasgow) but no idea who offers DB pension management services these days.

Is this effectively an executive perk or are you looking at it re all staff , how many staff would it cover? Frankly I would not fancy all the paperwork for such a scheme for a care home if it were to cover all staff as likely high staff turnover down the payscale would mean a lot of admin and a lot of cost unless run in house .

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Replying to DJKL:
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By David Ex
11th Oct 2021 15:03

DJKL wrote:

Have you considered that as this will likely be an unfunded scheme you will have all the actuarial implications that will flow, and the impact these may have on distributable reserves etc, accounts disclosure, similar ?

Most death in service benefits gets rolled into a DB pension scheme, well certainly my wife's does, have you considered this route? (All DB schemes are, imho, not for the faint hearted.)

I’d be gobsmacked if anyone was setting up a DB pension scheme now. As you say, aside the cost, a complete can of worms legally and administratively.

I think that, by the time an alternative to external insurance is fully costed, self insurance won’t be the best plan.

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Replying to David Ex:
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By adf2410
11th Oct 2021 15:20

Thanks both. This is sounding like a bad idea then. It would be for all staff - c.600. Most of those are auto enrolled in the nest pension scheme. Managers have a different DC scheme.

This came from the fact that we had an employee who died (not from covid) last year. Single mum to a 12 year old. It made us feel that if we were able to give a an amount to the daughter, or her parents, that would have been a responsible thing to do. Are there any alternatives?

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Replying to adf2410:
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By Hugo Fair
11th Oct 2021 16:04

I'd certainly drop the idea of doing this via self insurance ... I'm certain you're coming at it with a kind heart, but it's possibly the worst idea I've seen on Aweb!

The only bit of lateral thinking I can offer is to investigate whether, as a Care Home, your staff would be eligible to join the NHS Pension scheme (which includes the Death cover as standard).
It's not the world's simplest scheme to understand (although nothing like as bad as the Local Govt scheme), but it's quite generous and obviously there are a lot of experts in it to help guide you.
https://www.nhsemployers.org/publications/death-service-benefits-nhs-pen...

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Replying to Hugo Fair:
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By adf2410
11th Oct 2021 20:06

Thanks Hugo - for the 'worst idea' award, and your idea too. I'll have a look into whether we could join the NHS scheme.

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By paul.benny
11th Oct 2021 16:26

I’m not wholly convinced that a PAYG self-insured scheme is necessarily complex for accounting purposes – you simply have a P&L charge for each death equal to the sum payable. The downside is that you have a low probability risk of multiple deaths in a year with the concomitant risk to cash and profits.

The potential complexity comes from how you structure payouts so that they’re out of scope of both PAYE and IHT.

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Replying to paul.benny:
paddle steamer
By DJKL
11th Oct 2021 17:14

Do you not need to actuarially provide vis a vis age profile of the staff etc?

Surely financial commitments etc need calculated.

Certainly when we audited DB schemes we needed to consider such matters and of course the company whose contributions to the scheme were open ended needed to account for its liability within its accounts (I appreciate the ones I worked on were schemes for a quoted company and a long time ago ,but surely if there is a sponsoring company, who needs to pay for the benefit if claimed, their likely liability needs regularly calculated?)

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Replying to DJKL:
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By paul.benny
11th Oct 2021 19:08

I think not if it's strict PAYG arrangement - at any given date, the liability is a known amount. (Save only for deaths pre-period end but notified afterwards)

If you want to accrue for potential liability, then yes, you may well need an actuarial calculation to support the provision. Don't forget, there is no post retirement or post termination benefit. Former employees get nothing.

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Replying to paul.benny:
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By adf2410
11th Oct 2021 20:03

Paul, I think you're closest to what I was thinking. A pure PAYG model. Based on what we would have had to pay out over the last 10 years, it would have cost around £10k on average per year, which is very much less than the premiums we'd have to pay for death in service insurance now.

And it's not because of lack of funds. If all the employees died now and we paid them all the proposed death in service benefit, we'd still have cash left over. A whole set of other problems would ensue, but cash would be ok.

So I think my proposed course of action is to discuss with our auditors to get their view about the accounting issues, and then to get some tax advice on how the payment would end up being treated for tax purposes. And also flag the risk of doing this to the trustees.

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By zebaa
11th Oct 2021 16:59

I think a death benefit could be arranged via a third party; if it's cost that's the issue then you are stumped. And don't even think about setting up a DB scheme either. There is a reason so many have closed over the last 20 years.

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Replying to zebaa:
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By adf2410
11th Oct 2021 20:08

Agreed on the DB scheme!

The third party idea is what we first looked at, but asking for a price for care home staff during a global pandemic elicited responses of 'you must be joking' - or prices which said the same thing.

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By davidbrewster
04th Nov 2021 12:25

There is a Government C-19 scheme paying £60K to NHS/Care Home Staff.

"Self insurance" is anomolous as insurance providers require a licence.

Keep it simple. Employees effect personal insurance and the employer pays the premium on their behalf.

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By slowthinker
04th Nov 2021 12:32

Just a thought - is there a professional body with a benevolent fund that staff could join? There could be assistance to family in the event of death in service.

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