Introduction to Grouplife Insurance

Grouplife Insurance Cover

Grouplife insurance is a policy bought by an employer on behalf of its employees. The aim is to provide death benefit for the dependants of a deceased employee before retirement.

Most employees are bread winners of their families and their untimely death will leave a vacuum in the finances of the family. The children might still be in school, there may be loans or mortgages running and so on. The ideal therefore is to minimise the financial burden the dependants will go through in time of death of a beloved.

Africans also believe in giving a befitting burial for the departed one and the cost of this could be enormous. It may not be a good idea imposing more financial constraints on the bereaved family.

Every employer therefore tries to provide its employees with a death-in-service benefit to encourage them more to work and to allay the above stated fears. The death-in-service benefit will usually apply in addition to other benefits that are related to age or length of service.

The amount of the benefit will usually be a multiple (typically 3 of 5 times) of the annual salary but will not depend on the age, sex, length of service or any other factor.

Why Grouplife Insurance?

Most countries make it mandatory for an employer of labour to have such benefits in place for its employees. There is however the need to ensure that funds will be available to pay such benefits whenever they arise (i.e. upon death of an employee). There have been cases where the employer was not able to pay such death benefit.

The solution appears in transferring the risk of payment to another organisation, typically by insuring such risk. The employer does this by purchasing a grouplife insurance policy from an insurance company. The employer pays the premium on behalf of the employee while the insurance company settles claims that may arise. By so doing, the ability to pay is no longer tied to the financial capability of the employer at the time of the claim.

The Practice in Nigeria

Section 9 (3) of the Pension Reform Act 2004 requires all employer to maintain life insurance policy in favour of the employee for a minimum of three times the annual total emolument of the employee. The act defined total emolument to be the sum of basic salary, housing allowance and transport allowance. The law also stipulates a fine of up to N250,000 and/or an imprisonment of one year for contravening any of its provisions.

Conclusion

Is there a grouplife insurance policy in place in your organisation? Is the minimum threshold of a minimum of three times annual emolument being kept?

It is also important to know that the burden of paying the premiums for the life policy is strictly that of the employer and the employee should not be made to bear any part of the premium in any form.