Life and Disability Insurance
Group life and total and permanent disablement insurance are relatively low cost benefits which tend to be highly valued by staff.
Life insurance is usually combined with total and permanent disablement insurance when implemented by employers for employees. The reason for this is that, from an employer's perspective, the total and permanent disablement of an employee has an effect similar to the death of the employee. In both cases the employee's employment and earnings capacity cease.
Total and temporary disablement, and subsequent partial and temporary disablement, are covered under a separate type of cover known as income protection insurance.
The Benefits of a Group Arrangement
Premium rates under a group life and total and permanent disablement policy are almost always less than those which can be obtained by individuals under personal insurance policies. Consequently employers have the ability to deliver significant value to employees simply by exercising their buying power.
In addition, group life and total and permanent disablement policies usually provide automatic acceptance up to a generous limit. This means that employees can be immediately covered at standard premium rates and on standard terms without being assessed for health, occupation, lifestyle or pursuits. This is often a difficulty with personal insurance policies, which normally require full disclosure to and assessment by the insurer. The incidence of loaded premiums and policy exclusions for personal insurance policies is greater than many people would expect.
The principal reasons why organisations implement group life and disablement policies are:
- To deliver value to employees in excess of the equivalent cash benefit by using the organisation's buying power to obtain premium rates significantly below those which apply on a personal basis;
- To augment the range of benefits available under the organisation's total remuneration system;
- To provide death and disablement benefits specified under a new or restructured superannuation scheme implemented by the organisation;
- To act on a view by management that the organisation should procure the payment of a benefit to an employee or to an employee's dependants in the event that the employee is forced to leave service due to illness or injury, or on the employee's death.
Profit Share Rebates
Profit share rebates have the potential to further reduce premium costs for employee groups. A profit share rebate is a premium refund offered by insurers if the claims which they are required to meet are well within the level of premiums which they receive.
If a group meets certain minimum criteria, then the profit share formula can be based on the group's own claims experience. A formula negotiated with the insurer is applied, often at the end of each policy year, and if the claims over that period have been less than the corresponding premiums after an allowance for administration costs, then the resulting profit is shared with the client by way of a rebate payment. Profit share rebates on this basis can be substantial.
If a group is unable to meet the insurer's criteria for a self-experience profit share basis, then a pooled-experience basis can usually be obtained. This provides a profit share rebate which is based on the combined claims experience of all groups which are covered by the insurer on a pooled-experience basis.
Reviewing Existing Arrangements
For organisations which have an existing group life and total and permanent disablement policy, the need for a review and re-tender of that policy can arise for a number of reasons. These include:
- The policy becoming uncompetitive following several years without review;
- The emergence of new insurance products, or improvements in the terms of existing products;
- A decision by one or more insurers in the market to aggressively grow market share through attractive offerings;
- Dissatisfaction with an existing insurer due to difficulties with claims, underwriting or servicing;
- Proposed or applied premium increases to an existing policy.
Further Information
If you feel that your organisation could benefit from an independent review of its existing group insurance arrangements, or if you are considering implementing a new employee insurance plan, please contact us.
If you are not sure of whether a review is appropriate in your circumstances, or if you would like some indication of the prospective benefits of a review, then we can assess your existing arrangements and advise you of the best course of action.