Group life insurance: For companies, clubs, associations

As the name implies, Group Life Insurance is a life insurance cover for a group of people, usually with a common denominator: employees of a company, members of a club or association, traders in a location, etc. In the past, group life insurance was taken mainly by companies for their employees. The company is the assured and pays the premium, but the employees or/and their next of kin are the beneficiaries.

Group life insurance gained traction with the coming into force of the New Pension Reform Act 2004.  The act, as amended in 2014, made Group Life Insurance compulsory for all establishments and companies in Nigeria with five or more employees. Since then the Group Life Insurance bug has bitten many clubs, associations, market men and market women. Many of these groups now subscribe to group life insurance for members as an added benefit for belonging to the group.

Group life insurance typically covers the death of an employee or member of the group. It provides for a payment of the sum assured in the event of an employee’s or a member’s natural or unexpected death. “Unexpected death” here means Group life insurance does not cover death by suicide. Group life insurance also covers a disappearance of an employee or a member, but there is usually a 12 month waiting period before the benefit can be paid to the next of kin, if nothing is heard about the person. He is presumed to be dead. There has been agitation by employees and members of associations to directly benefit from Group life insurance, in addition to their next of kin benefitting on their death. Consequently, group life insurance can now be arranged to provide additional benefits such as: permanent disablement, total temporary disablement, accidental medical expenses and much more.

Usually, the premium for group life insurance is calculated taking the sum assured, age, health status and other parameters of the employee into consideration.  The Pension Act specifies that the benefit of group life insurance to employees is “three times the annual total emolument of the employee.” Total emolument here means, “total sum of basic salary, housing allowance and transportation allowance.” The benefit comes to 300 percent of the annual total emolument. That is the sum assured.

It is a little different with clubs, associations and other groups. Here the group determines the benefit for members (sum assured) and the insurance company charges commensurate premium. Some groups pay the premium from their common purse, while individual members pay their premium in other groups. Where individuals pay their premium, the group might stagger the sum assured according to members’ financial capacity. In other words, some members pay N5,000 per annum for a sum assured of N1m, other members pay N9,500 for a sum assured of N2m and so on and so forth. The insurance contract is yearly. Once it is one year, the contract lapses and is due for renewal.

This annual group life insurance has given many people, especially those without much savings and assets, peace of mind. Take, for instance, an employee with extended group life insurance, who earns N6 million per annum. If he becomes permanently disabled, he is entitled to N18 million as benefit. Let us assume, he belongs to a club that also took an extended group life insurance with a sum assured of N5 million; that is an additional N5 million. If his society in the church also took a group life insurance, as many church societies now do these days, he is entitled to additional sum, let us say N2 million. With this N25 million, he can organise his life, plan well and live comfortably, even though he is permanently disabled. And in the case of death, the family will be entitled to the same sum. With that kind of money, children’s education will not be interrupted; rents will be paid, if they are tenant. They can even build a bungalow from the money and still have a reasonable sum to live on.

Do you work in a company of five or more employees without a group life insurance? It is your entitlement and your company is in breach of the law. I am often surprised that some employers dodge providing group life insurance for themselves and their employees. It has dual benefits. It means that the company might not need to stretch its finances to pay out any benefits on the death of an employee because it has outsourced the responsibility to an insurance company. The owner of the business, by taking up an extended Group Life Insurance, with himself included, will be giving himself peace of mind in the event of permanent disablement and additional financial security for his family in the event of death.

Members should also encourage associations, clubs, cooperatives, etc., to take up group life insurance. Clubs and associations should go beyond drinking, eating and feasting to do something worthwhile for members’ welfare. For a fraction of what they spend on permanently incapacitated members and families of deceased members, they can transfer the responsibilities to an insurance company.

The maximum age for participation in group Life Insurance ranges from insurance company to insurance company, but many insurance companies have a 65 years age limit. This has been an issue in the Nigerian market. There are clubs and associations that cannot come to agreement on group life insurance because members who are above the age limit feel cheated. In advanced countries, much older people can take a life policy as long as they can pay the premium. The situation is different here with an average life expectancy of about 55 years, and the general insecurity, poor infrastructure and poor medical facilities.

But one thing is certain, extended group life insurance is a very effective tool in giving employees and members of group peace of mind and financial security in the event of permanent disability and financial security for their families in the event of death. Talk to a registered insurance broker for guidance and good deals.