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Group Life Insurance – Cover for One, Cover for All

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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 confront someday. So, why not plan for it?

Life insurance does not have to be a taboo subject and neither should it be considered a death sentence. Depending on your perspective, it can be viewed as one of the most important financial planning strategies you will ever make. Imagine this scenario, you are saving for your retirement, children’s university education and also paying off your mortgage; only one thing can disrupt your plans- untimely death.

It is not that you plan for this to happen or that you expect it to happen, but it would be unwise not to acknowledge the possibility of it happening. You do not have to spend a lot of time thinking about it either. Once you have a life insurance policy in place (albeit a group life insurance policy) that takes care of your family’s finances in the event of this worst-case scenario, you can go back to living 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 contract covers an entire group of people. Typically, the policy owner is an employer or an entity such as a labour organization, and the policy covers the employees or members of the group (Clubs, Affinity groups, Associations etc.).

Group life insurance policies are generally bought by employers, professional associations, business groups, banks, and housing societies. This plan provides life insurance coverage benefits to a large number of people, regardless of their age, occupation, gender, and socioeconomic status. The premium amount payable under a group plan is significantly lower than those for individual life insurance plans purchased separately for the same number of people.

In Nigeria, group life insurance is compulsory by virtue of the Pensions Reform Act of 2004 (PRA 2004). Section (9) subsection (3) of the Act requires employers to maintain a life insurance policy for their employees for a minimum of (3) three times the annual total emolument of the employees. For some perspective, emergency savings are generally expected to cover about 3 – 6 months’ worth of expenses[1]. It is therefore fair to say that 3 years’ worth of annual income would cover way more than that.  The cost of this insurance cover is entirely borne by the employer and the requirements for putting in place a group cover are not as strict as those for individuals.

Before 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 of 1987 (WCA 1987) which existed at the time. The WCA 1987 also did not provide coverage for employees outside work hours and thus the PRA 2004 (now amended to the PRA 2014) came to be the most important legislation for employees’ comprehensive welfare especially because it made it compulsory for employers to subscribe to a group life insurance cover for their employees in addition to setting up a contributory pension scheme.

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It is important to also note that while corporate organisations are compelled to take out this cover on their employees, entities such as Affinity groups, Social Clubs, Associations etc. can choose to purchase group life policies for the protection of their members. The lack of statutory provision for such groups also means that they are at liberty to set the financial benefits for their life cover to suit the needs of their members.

Advantages of Having a Group Life Insurance Plan For the Employees

  1. Free Life Cover

Compared to an individual life insurance plan, group life insurance policy is free and provides a default life cover to the employee, as an incentive.

  1. No Pre-requisites

With individual life insurance policies, the insurance company considers several factors, including your lifestyle habits and medical history, before issuing it. On the other hand, there are no pre-requisites to purchase a group life insurance plan.

  1. Hassle-free Claim Settlement Process

The claim settlement process for a group life insurance policy is usually quick and straightforward. The employee or their beneficiaries only have to submit the required documentation to initiate the claim settlement process.

For the Employers

  1. Low Premiums

Premiums payable under a group life insurance policy are paid by the employers. Instead of purchasing individual life insurance plans, employers can significantly lower their expenses by opting for group insurance plans to cover the same number of employees.

  1. High Employee Retention

In as much as this requirement is statutory, many companies’ still default. Having 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.

  1. High Morale Among Employees

The security and peace of mind provided under a group life insurance policy helps keep employees stress-free and enables them to focus on the essential tasks at hand.

Linking Group Life Insurance and Group Credit Life

It would be a mistake to conclude that group life insurance exists merely for the purpose of providing cover to members of identifiable groups. If anything, group life insurance in the form of group credit life policies is fast becoming a critical component of the country’s financial ecosystem, particularly with the worrying growth in non-performing loans.

Group credit life is an agreement between the insurance company and lending financial institutions (e.g., Commercial banks, Microfinance Banks, Fintech platforms, Mortgage banks etc.) which provides insurance cover with respects to loans issued by the financial institution in question, subject to the terms and conditions agreed between the parties. This does not only save the lending financial institutions from costs that would otherwise have been directed towards recovery efforts, but it also protects or reduces the liability of dependents with respect to the unpaid balance of a credit facility taken 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 case of the borrower’s demise. If your spouse or someone else is a co-signer on your loan or mortgage, credit life insurance would protect them from making loan payments after your demise.

Life is full of uncertainties, and while we are currently better equipped at analyzing risks and calculating odds, no one can possibly account for every possibility. 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. This is perhaps why group life insurance is so critical as its benefits extend beyond that of the individual, to the wider society. Indeed, apart from the obvious benefit of providing succor to employee’s dependents, it has helped to deepen insurance penetration by demonstrating to the wider populace that indeed insurance does work in Nigeria.