One of the most practical advantages of group life assurance is that most employees can be covered without having to answer a single medical question. The mechanism that makes this possible is called the free cover limit, and it’s something every employer with a group life scheme in place should understand.
What Is the Free Cover Limit?
The free cover limit (sometimes called the automatic acceptance limit) is the maximum level of cover an individual employee can receive under a group life scheme without needing to provide any medical evidence.
When a scheme is set up, the insurer agrees a free cover limit based on the size of the workforce and its general risk profile. Any employee whose benefit falls within that limit is covered automatically. No questionnaires, no medical history, no underwriting on an individual basis.
For most workforces, the majority of employees will sit comfortably within the free cover limit. It’s only where an individual’s benefit exceeds it that the insurer will ask for additional medical information.
How Is It Calculated?
The free cover limit is typically expressed either as a fixed sum or as a multiple of salary. It varies between insurers and is influenced primarily by the size of the scheme.
As a rough illustration, a smaller scheme of fewer than 20 employees might have a free cover limit of around £500,000 per member. A scheme covering 50 employees might see that rise to £750,000 or beyond. The larger the scheme, the higher the free cover limit tends to be, reflecting the spread of risk across a bigger group.
To put that in practical terms: if a policy provides cover of four times salary and an employee earns £80,000, their benefit would be £320,000. If the free cover limit is £500,000, that employee is covered automatically with no medical questions required.
What Happens if an Employee Exceeds the Free Cover Limit?
For employees whose benefit sits above the free cover limit, the insurer will typically request a medical declaration. This is standard practice and doesn’t automatically mean that full cover is unavailable.
In most cases, the insurer will still provide cover. They may accept the employee on standard terms, apply a loading to the premium for the portion above the limit, or in some cases exclude a specific pre-existing condition. Outright declines are relatively uncommon, and the employee would still be covered up to the free cover limit regardless of the outcome.
This tends to affect a fairly small proportion of any workforce, typically senior employees whose higher salaries mean a larger multiple produces a benefit that exceeds the threshold.
Why This Matters When Choosing a Policy
The free cover limit is one of the most important and most overlooked factors when comparing group life schemes, particularly for growing businesses.
A common mistake is to prioritise a lower premium without considering the free cover limit that comes with it. A cheaper policy may carry a lower free cover limit, which means more employees are likely to require individual underwriting. Over time, as the business grows and salaries increase, this can create complications and potentially higher costs.
As HWWA’s existing guidance on group life minimum numbers notes, choosing a policy with a low free cover limit to save on initial premiums can cause issues as your business scales. It’s worth discussing the longer-term implications with an adviser before committing to a scheme.
There is also some room for negotiation. An experienced adviser with established insurer relationships may be able to secure a higher free cover limit than would be available through a direct or comparison-based approach.
A Practical Point for Employers
When reviewing an existing scheme or setting up cover for the first time, it’s worth asking your adviser not just what the benefit level is, but what the free cover limit is and how it relates to your current workforce.
For most employees, the answer will be reassuring: they’re covered, no questions asked. For a small number, particularly at senior level, it’s useful to know in advance what the underwriting process looks like and what outcomes are possible.
Group life assurance is one of the most valued and cost-effective benefits an employer can offer. Understanding how the free cover limit works means you can set up and manage your scheme with confidence, and make sure your people are properly protected.
If you’d like to review your current group life arrangement or explore cover for the first time, book a free benefits review with HWWA Consulting.
