Employer-sponsored group life insurance scheme is great but…


It has some limitations.

Let me explain in less than 500 words.

An employer-sponsored group life insurance scheme provides life insurance protection for employees while in employment. Here in Nigeria, section 4(5) of the Pension Reform Act 2014 makes it mandatory for every employer to, in addition to the pension contribution for each employee, “maintain a group life insurance policy in favour of each employee for a minimum of three times the total (annual) emolument of the employee.”

In the event of death of an employee while in service, the insurance company will, by virtue of this group life insurance policy, pay the stipulated benefit (i.e. three times annual total emolument) to the deceased employee’s named beneficiary. This serves as a financial “compensation” to the beneficiary/dependant for the loss of his/her breadwinner.

Sounds good.

And that’s not all.

As the name suggests, a group life insurance scheme covers a group of people; in this case, employees. Cover becomes almost automatic for all the employees and they don’t contribute to the cost of their insurance protection. The employer bears the total cost.

It is also possible for an employee with certain diseases to obtain cover without undergoing any medical examination under a group life insurance scheme if his level of benefit is below a certain amount. Insurance companies describe this as the “Free Cover Limit.” For example, if the Free Cover Limit for XYZ scheme is N10 million, none of the employees whose benefit are below this amount would be required to undergo medical examinations. So, a group life insurance scheme becomes a convenient way for an employee to obtain financial protection despite his health condition.

But as great as this scheme is, it also has some drawbacks.

One, it is only available to the employee while in the service of his employer. This beautiful cover expires the moment an employee resigns, retires or gets fired by the employer.

Two, the minimum benefit of three times of annual total emolument stipulated by the law sounds great, but this would depend on each employee’s financial situation. The key question that every employee should ask is: “Would this amount be enough to cater for my beneficiary/family if I should pass away?”

Three, each employee has limited options under the scheme.  The benefit is defined, and it is strictly for payment to beneficiaries in the event of death while the employee is working for the employer. An employee cannot structure the insurance cover the way he pleases. For example, he cannot arrange the cover specifically for his children’s education, his retirement and health, or his mortgage loan; options that could be easily considered under the individual life insurance policies.

So, the solution is quite simple: Employees should buy additional life insurance policies on their own. They should not rely solely on the compulsory employer-sponsored group life insurance scheme.

That’s my point.

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