A group life insurance scheme, in its basic form, provides for the payment of a certain sum of money in the event of death of an employee while in employment. It is a basic term assurance scheme which usually provides for the payment of a fixed sum or a multiple of the employee’s annual salary (e.g. 3x or 4x). The employer sponsors the scheme, and benefit is paid by the insurance company in the event of death of an employee within the period of cover (usually one year, and renewable annually thereafter). It is a very cheap form of life insurance and employees don’t usually bear any part of the premium payment.
Section 9(3) of the Nigerian Pension Reform Act 2004 makes it mandatory for employers of labour to provide life insurance cover for their employees. The minimum benefit specified by the Act is three times the employee’s total emolument. Though the scheme has now become mandatory in Nigeria, it is quite sad that many employers in the country are yet to comply with the provisions of the law. This fact is well known to the authorities who are already working on how to improve the compliance level.
It should be expected that the number one reason for an employer in Nigeria to have a group life insurance scheme for its employees would be to comply with the provisions of the law, since it would be illegal to do otherwise. Many employers would not deem the scheme necessary if there is no element of compulsion in it; which has always been the case in the country. Ordinarily, an employer would rather see it as an additional financial burden to put the scheme in place, particularly during this period of global financial downturn when organizations are finding ways of reducing cost.
Whether made compulsory or not, there are many reasons for an employer to consider a staff group life insurance scheme to be essential. Ten of such reasons are highlighted below:
- Staff Recruitment
The employer-sponsored group life insurance scheme serves as a very good incentive for recruiting and retaining great staff. This becomes much clearer where the employer’s occupation is hazardous (e.g. manufacturing factory). Here, employees will naturally be concerned for their safety and be interested in what happens to their families in the event of a premature death.
Viewed from another perspective, an employee who has job offers from company A and company B with the same employment packages would rather opt for company A that has a group life insurance scheme, and dump company B that doesn’t.
- Staff loyalty
Flowing from point 1 above, a group life scheme gives the employees peace of mind as they would be able to concentrate on their job, knowing full well that they are duly covered by an insurance scheme. This will, of course, promote staff loyalty and commitment as they would be willing to take more risk in the course of their duties.
- Cordial relationship
Provision of life insurance cover for employees will promote a cordial employer/employee relationship. Of course, labour unions exchange notes across industries. If an organization doesn’t do what others are doing, tendency is for agitations to come from its employees which could lead them to carrying placards every now and then to demand for better working conditions. An employer also needs to consider how unhappy the employees would be if reasonable benefits are not paid to the dependants of a colleague who died in service.
- Cash Flow Management
Assuming that an employer considers it necessary to make adequate financial provisions, the fact remains that nobody knows exactly when death would strike. What if it also happens that more than one employee die almost at the same time? Can any employer conveniently provide for such a disaster? What if it happens when the company is undergoing some financial strains and its Cash Flow is not looking friendly? Clearly, it would be difficult for such an organization to fulfill its aspirations.
By having a group life insurance scheme in place, the responsibility for payment is automatically transferred to the insurance company, and the employer needs not worry about where to get the money to pay a deceased employee’s dependants.
- Better Budgeting
Having a group life scheme in place assists the employer in budgeting as it becomes easier to know the exact cost of covering the staff. All that the employer requires is the insurance company’s invoice for the required premium which would be included in the organization’s budget. In addition, the employer buys peace of mind when the premium is paid as there would no longer be that disturbing worry about what may happen if an employee dies in service.
- Image enhancement
By providing financial compensation to employee’s dependants, the employer is indirectly enhancing its own image. Everyone would see the company as a good organization and would be willing to work for, or do business with, her. The best way to appreciate this is to imagine a situation where an employee dies in service and the employer fails to make any payment to the deceased’s beneficiary. Imagine the lawyer suing the company and the story widely reported by the media. How would the public perceive such an organization? Surely, the embarrassment would be great, and such would definitely be avoided if a group life scheme is put in place for employees.
- Cost Saving Mechanism
A group life insurance scheme is very cheap so the cost implication for the company is minimal. It is doubtful if any other cheaper method of providing for eventualities exists. No doubt, the cheaper a company can provide for its employees, the better the effect of such a decision on the company’s profitability.
Apart from the fact that a group life insurance scheme is very cheap by nature, it is important to add that the insurance company takes away from the employer all the administrative work involved. This therefore saves the employer the task of recruiting additional staff for administering the scheme, or the financial burden of establishing a special unit for group life insurance purpose.
- Family protection
The primary purpose of life insurance is to provide financial relief for dependants in the event of a premature death. An employer fulfils this purpose for the employees when a group life insurance scheme is established for them. If an employee dies while in service, the life insurance benefits are paid to the dependants who, in turn, can utilize the fund for a number of purposes – including the burial of the deceased employee. They have some fund to fall back on so they won’t become financially stranded because of the breadwinner’s demise. This insurance money may even be the only form of “savings” that the deceased employee left behind for them as a legacy!
- Tax Advantages
The employer enjoys tax relief on the premium paid for the employees’ group life insurance scheme. This can run into millions of money where the employees are many, or where the amounts of benefits (sums assured) are huge. In other words, the premium paid by the employer is, indirectly, a form of savings for the organization too.
- Corporate social responsibility
When an organization has a group life insurance scheme in place for its employees, it is actually contributing to human welfare. It is indirectly cutting the number of destitute on the streets, and reducing the number of unhappy families in the society. When one thinks of what could happen where dependants don’t have anything to rely on after the passing away of their breadwinner, it would become easier to comprehend the effect of a simple act of instituting a group life scheme for employees. A company that provides life insurance cover for its staff is actually fulfilling a corporate social responsibility.