In modern times, Group Life Insurance has become one of the most effective financial protections that organizations can give to their employees. Studies have shown that when employers provide incentives like Group Life Insurance to their workforce, their motivation and productivity increases. By showing employees how valuable they are, organizations can drastically reduce employee attrition rates and retain talent.
In Nigeria, Group Life Insurance is a critical component of the Pension Act of 2014 (PRA 2014). The act requires employers to maintain a group life insurance policy for their employees for a minimum of (3) three times their annual total emolument. For a better perspective, employers are mandated to insure the lives of their employees so that in the event of death, their loved ones will receive a lump sum payment to cater for themselves. This article provides a beginner’s guide to understanding Group Life Insurance, including the definition, how it works and the benefits of the policy to employers and employees.
What is Group Life Insurance?
Group Life Insurance is a form of Term Life Insurance policy purchased by an employer or association for the benefit of its employees or members. Once an insured employee happens to die, the death benefits accruing from the insurance policy is given to a named beneficiary as documented by the deceased. In Group Life Insurance, every employee is covered by a single life insurance contract which lasts as long as the employee works for the employer.
How Does Group Life Insurance Work?
Group Life Insurance works with large contributions from the employer. Employers are expected to provide and finance a Group Life Insurance plan for active employees in their payroll. The premium is expected to be paid no later than the date of commencement of the policy.
What are the Types of Group Life Insurance?
Group Life Insurance can be classified into two plans — Contributory and Non-contributory.
In a contributory plan, employees ‘contribute’ a portion of the premium while the employer pays the rest. However, one drawback of a contributory group life plan is the limited choice of coverage an employee can benefit from.
Non-contributory occurs when the entire premium is paid by the employer with none coming from the employee. All costs are usually paid by the employer.
What’s the Difference Between Group Life Insurance and Individual Life Insurance?
In the aspect of price, group life cover is generally less expensive than Individual Life Insurance. The premium amount you pay for a group life plan is much lower than what you pay for Individual life policy.
Compared to individual life where you agree to pay premiums (monthly, quarterly, or annually), your employer bears the entire cost of the group life cover. In most cases, however, your employer arranges the premium payments to be shared in which a small amount from your earnings is added to the Group Life Insurance while he pays the large chunk.
3. Death Benefits
The Death benefit for Group Life Insurance is the sum assured which can be either times 3, 4, or 5 of the total annual emolument. The beneficiary of the employee receives the death benefit at the demise of the deceased.
4. Easy Registration
It’s quite easier to register for group life cover than Individual Life Insurance. The requirements to qualify for group life coverage are not as rigid as compared to individual life. This makes it less cumbersome and faster.
5. No Medical Examination
Most Group Life Insurance doesn’t require a medical examination to onboard. Once you join a new company with an existing group life protection, you automatically get signed up during onboarding.
Benefits of Group Life Insurance
1. Stable Workforce
With Group Life Insurance, organizations can increase employee loyalty and retention rate. Once employees are assured of their financial security, the tendency of them leaving a company becomes limited. This helps a company maintain not only a stable workforce but increase in productivity.
2. Cost-Effective Coverage:
Compared to Individual life cover, Group life plan is often more affordable. This is because the risk is spread across a larger group of people, and the premiums are typically lower. Employers who provide Group Life Insurance are rewarded with a cost-effective way to provide coverage for many employees.
3. Seamless Processing of Death Benefits
The policy relieves employers of financial commitments associated with employees’ death like burial cost, and death benefits. Rather than waste precious time preparing death benefits, employers can relax while the Insurance company takes up the processing and payment of claims to the beneficiaries.
3. Tax Savings
Proceeds received from the group life policy are exempted from tax. Section 33 of the Personal Income Tax Act (PITA), 2011 as amended provides for tax deductibility of premium on Life Insurance and deferred annuity.
1. Affordable Insurance Cover
Individuals under Group Life Insurance plans can enjoy affordable insurance with little to no cost. This is because the employer negotiates with the Insurer for the whole group instead of a single individual. By getting on boarded to the policy, each individual employee receives a sort of incentive that’s much lower than purchasing an expensive individual life policy.
2. Value for Money
Group life cover gives employees the best value since members pay less to enjoy large financial benefits thanks to the large amount paid by their organization.
3. Provides Support for Bereaved Families
Beneficiaries of the deceased employee receive their death benefits. This helps support the employee’s family in difficult times.
4. Flexible Claim Settlement
The claim settlement process for a Group Life Insurance policy is less rigorous and straightforward. The beneficiaries only need to submit the required documentation to initiate the claim settlement process.
Who is the Beneficiary of Group Life Insurance?
A beneficiary is a person who has been named by virtue of a legal document to be the recipient of your assets, property, or finances after your demise. In the case of Group Life Insurance, your death benefit is transferred to the individual(s) known as the beneficiary.
Without any doubt, a Group Life Insurance policy comes with various benefits and getting it is quite easy. Whether you’re making an enquiry for your organization, or social group, it’s best to consider an Insurance company with a track record of paying claims on time. Cornerstone Insurance Plc has one of the best Group Life Insurance plans for your organizational needs. Why not take a bold step today by contacting a Cornerstone Insurance agent close to you?
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FAQS on Group Life Insurance
What is the Minimum Age for Group Life Insurance?
The minimum age required to obtain Group Life Insurance is 18 years. The maximum age is 64 years but can extend to 70 years for Medical Consultants, University Professors, and other social groups with full-time active members.
When Does the Policy Terminate?
It is an annually renewable policy and terminates on the last day of cover, however it is advisable that the policy be renewed before cover lapses.
Is Group Life Compulsory in Nigeria?
Yes. Section (9) subsection (3) of the Pension Reform Act 2014 requires employers to maintain a life insurance policy for all their employees. The act further mandates employers to pay at least (3) three times the employees’ Gross Annual Total remuneration into the Group Life Insurance policy.
Who Pays for the Group Life Insurance Policy?
The employer bears the full liability and cost of the Group Life Insurance. In some instances however, employees ‘contribute’ a portion of the premium while the employer pays the rest.
Can I Receive Payout for My Group Life Insurance?
No, you can’t receive payout for your Group Life Insurance. The policy doesn’t offer you cash benefits on maturity. Only in death can your beneficiary be paid compensation otherwise known as death benefit.