Group life insurance – Coverage for one, coverage for all
Benjamin Franklin once said, “In this world nothing can be said to be certain except death and taxes.” For centuries, humans have known that death is a certainty that everyone will have to face one day. So why not plan it?
Life insurance should not be a taboo subject, nor should it be seen as a death sentence. Depending on your perspective, this may be considered one of the most important financial planning strategies you can implement. Imagine this scenario, you are saving for your retirement, your children’s university studies and also to pay off your mortgage; only one thing can disrupt your plans: an untimely death.
It’s not that you plan for it to happen or expect it to happen, but it would be unwise not to recognize the possibility of it happening. You also don’t need to spend a lot of time thinking about it. Once you have a life insurance policy in place (even if it’s a group life insurance policy) that supports your family’s finances in the event of this worst-case scenario, you can start over. to live your life with the assurance that all your bases are covered.
What is group life insurance?
Group life insurance is a type of life insurance where a single policy covers an entire group of people. Typically, the policy owner is an employer or an entity such as a labor organization, and the policy covers employees or group members (Clubs, affinity groups, associations, etc.).
Group life insurance policies are typically purchased by employers, trade associations, business groups, banks and housing companies. This scheme provides life insurance benefits to a large number of people regardless of age, occupation, gender and socio-economic status. The amount of premiums payable under a group plan is significantly lower than for individual life insurance plans purchased separately for the same number of people.
In Nigeria, group life insurance is compulsory under the Pension Reform Act 2004 (PRA 2004). Article (9) paragraph (3) of the law obliges employers to maintain a life insurance policy for their employees for a minimum of (3) three times the total annual emolument of the employees. From some perspective, emergency savings should generally cover about 3-6 months of expenses. So it’s fair to say that 3 years of annual income would cover a lot more than that.
The cost of this insurance coverage is entirely borne by the employer and the conditions for setting up collective coverage are less strict than for individuals.
Prior to the advent of the PRA 2004, many employees and their dependents were at the mercy of their employers. This was due to the limitations of the Workmen’s Compensation Act 1987 (WCA 1987) which existed at the time. The WCA 1987 also did not provide cover for employees outside working hours and so the PRA 2004 (now amended to PRA 2014) has become the most important legislation for the comprehensive welfare of employees, particularly because that it required employers to take out collective life insurance coverage for their employees in addition to setting up a contributory pension plan.
It is important to also note that while companies are required to purchase this coverage for their employees, entities such as affinity groups, social clubs, associations, etc. may choose to purchase group life insurance policies for the protection of their members. The absence of legal provisions for these groups also means that they are free to set the financial benefits of their life cover according to the needs of their members.
Benefits of having a group life insurance plan
1. Free life cover
Compared to an individual life insurance plan, the group life insurance policy is free and provides default life coverage to the employee as an incentive.
2. No prerequisites
With an individual life insurance policy, the insurance company considers several factors, including your lifestyle habits and medical history, before issuing it. However, there are no prerequisites for subscribing to a group life insurance plan.
3. Hassle-free claims process
The claims process for a group life insurance policy is usually quick and easy. The employee or his dependents need only submit the required documents to initiate the process of settling the claim.
1. Low premiums
Premiums payable under a group life insurance policy are paid by employers. Instead of purchasing individual life insurance plans, employers can significantly reduce expenses by opting for group insurance plans that cover the same number of employees.
2. Strong employee retention
To the extent that this requirement is statutory, many companies continue to default. The protection of a group life insurance policy as an incentive has been observed to reduce employee attrition rate, increase employee retention, and boost overall loyalty and productivity.
3. Good morale among employees
The security and peace of mind that a group life insurance policy provides helps keep employees stress-free and allows them to focus on the essential tasks at hand.
Linking group life insurance and group credit insurance
It would be a mistake to conclude that group life insurance exists solely for the purpose of providing coverage to members of identifiable groups. On the contrary, group life insurance in the form of group credit life insurance policies is rapidly becoming an essential part of the country’s financial ecosystem, especially with the worrying growth of non-performing loans. .
Group borrower insurance is an agreement between the insurance company and lending financial institutions (e.g. commercial banks, microfinance banks, Fintech platforms, mortgage banks, etc.) that provides cover insurance for loans issued by the financial institution in question, subject to the terms and conditions agreed between the parties.
This not only saves lending financial institutions costs that would otherwise have been spent on recovery efforts, but also protects or reduces the liability of dependents for the outstanding balance of a credit facility taken out by their breadwinner. .
Simply put, group credit life insurance is a type of life insurance policy designed to pay off a borrower’s outstanding debts in the event of the borrower’s death. If your spouse or someone else is a co-signer on your loan or mortgage, credit life insurance would protect them from loan payments after your death.
Life is full of uncertainties, and although we are currently better equipped to analyze risks and calculate probabilities, no one can take into account all the possibilities. This creates risks not only for individuals or groups of individuals but also for financial institutions which play an indispensable role in the economy of any modern society. Perhaps this is why group life insurance is so essential, as its benefits extend beyond the individual, to society at large. Indeed, besides the obvious benefit of providing assistance to dependents of employees, it has helped to deepen insurance penetration by demonstrating to the wider population that insurance does indeed work in Nigeria.