Misrepresentation, Non-Disclosure and Breach ... - Law Commission

(1) Income protection insurance.
(2) Life insurance.
(3) Medical expenses insurance.
(4) Critical illness insurance.
6.7 Though all written as “group insurance”, these schemes are arranged in different
ways and receive different types of taxation treatment. For example, income
protection claims payments are made to the employer. The employee will
continue to receive a salary – in whole or in part – and this will be taxed as
earnings in the usual way. Life insurance claims payments are made to trustees
who will make payments at their discretion, but frequently in line with any wishes
expressed by the employee. The payments may therefore escape inheritance
tax. Group medical expenses and critical illness insurances are treated as a
benefit to the employee and must be declared on a P11D form where applicable.
Employees are liable for tax on any premiums paid on their behalves.
6.8 We are not concerned here with three other common arrangements:
(1) “Affinity” schemes under which an insurer offers special terms to
individuals who fall within a particular group, for example offering medical
cover to the employees of a university. The employees who wish to take
advantage of these schemes will simply contract individually with the
insurer, and will pay the premiums. In the case mentioned the individual
contracts would all be separate consumer contracts within the meaning
of our scheme, even if the university authorities negotiated the general
terms of cover with the insurer.
(2) Policies that an employer may effect purely for its own benefit. For
example, an employer may effect key person insurance on crucial
personnel. Although such insurance provides benefits on the death or
serious illness of an employee, the intention is to cover the resulting loss
to the employer. This is business insurance within the meaning of our
scheme.
(3) Policies that an employer may effect to meet specific statutory or
contractual obligations to its workforce. For example, an employer may
effect insurance intended to cover its own liability for statutory sick pay.
Although an employee may gain some indirect benefit from the existence
of such an arrangement, the employer would in any event have been
obliged to make the payments. The same will be true if the employer has
entered contractual undertakings to its employees to provide them with
certain benefits. The contracts between the employer and the employees
are not contracts of insurance. If the employer has taken out insurance to
cover its contractual liability, that is straightforward business insurance
and will fall within the provisional proposals we made in Part 5.
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