Group life insurance is vitally important to an employee’s family rather than the staff member themselves, which may be why it is often so unappreciated, says Nick Martinuale
With Christmas approaching fast, many employers might be thinking of buying gifts for their staff (and even their families), as a thank you for their hard work over the year.
Yet plenty already provide a significant but often undervalued benefit in the form of group life cover, which protects a person’s family should they die in service.
According to Aon’s benefits and trends survey, 88% of employers provide this type of cover for at least some of their staff, while GRiD estimates offering a basic level for all staff could cost as little as 0.5% of payroll.
“Group life insurance provides an employee’s dependents with a tax-free lump sum benefit if they die while in service,” says Hannah Carter, group risk account manager at Sutton Winson. “The employee can choose a lump sum payment or a payment of their annual salary, from one to 20 times salary. This benefit is exempt from tax and is relatively cheap.”
From an employer’s perspective, group risk can also protect against having to make a lump sum payment to relatives out of a feeling of responsibility.
Colm Coffey, director in KPMG’s People Powered Performance team, says: “In a large organisation inevitably there will be deaths in service and this means that, rather than be faced with taking decisions on financial support at a time of emotional stress, the employer has clearly set out the benefit that would be payable under the scheme.”
Being unable to help in such circumstances could be hugely damaging to the employer brand, as well as traumatic for the family, suggests Katharine Moxham, spokeswoman for industry body Group Risk Development (GRiD).
“Staff watch how those left behind are treated,” she warns. “If an expectation to do the right thing by someone isn’t met, employers who fail to offer this benefit could fall behind their competitors, for recruitment, retention, morale and productivity.”
Just how much employees value life cover as a benefit, though, is open to debate. Moxham says it tends to be appreciated by employees, particularly those for whom this is the only source of life assurance provision.
“GRiD’s latest research indicates that just over 50% of employees are prepared to give up a small pay rise for a group life benefit of four times salary, while 88% of employers say their staff understand their group life benefits reasonably well or better,” she says.
But this isn’t always the case. “Although one of the most common benefits, it isn’t necessarily hugely valued by employees,” says Paul White, senior consultant at Punter Southall Health & Protection.
“There are two key reasons for this. First, employees will not themselves benefit from life assurance cover and, secondly, the incidence of death while in employment remains relatively low – perhaps one or two deaths for every 1,000 lives covered. Employees generally do not think they are going to die in the foreseeable future.”
Promoting the advantages
The reality is there is something of a knowledge gap, which means not everyone fully appreciates the benefit or understands its potential value, says Coffey, creating an obvious issue for employers footing the bill.
“For some employees – typically people who are well educated in personal financial matters – it is highly valued, but for others there will certainly be no knowledge of the benefit, or perhaps a knowledge without a full understanding of the value,” he says.
“This is definitely a challenge for employers, particularly among younger staff members for whom it may seem irrelevant.”
The emphasis is therefore firmly on employers to communicate just what is in place and the potential benefits – and value of this – to their employees.
“We find that life insurance is not as well communicated to employees as work/life benefits such as cash plans and retail discount schemes,” says Chris Morgan, manager of distributor partnerships at Ellipse. “Yet it’s vitally important and should be the cornerstone of any personal financial plan.
“It’s important staff understand what is provided and where possible adapt the level of cover to suit their needs.”
He suggests there are a variety of ways this can be done, from conventional options such as benefits events, company presentations and email campaigns through to including this as part of a wider financial education programme.
“For those employers working with smaller budgets, sending nomination of beneficiary forms out to their staff at the outset and every year, alongside an overview of the cover, is a simple first step,” he adds.
This can also be undertaken as part of the broader communication around the overall reward package, suggests Coffey. “There are many natural opportunities to do this, such as at induction, an annual flexible benefits enrolment or an annual salary or bonus review, as well as ad hoc opportunities.”
Technology also has a role to play in helping to ensure a proper understanding of group life cover.
“Giving people more opportunities to engage with the product and make it appropriate for their needs will make the product more valuable for them which, of course, is good for the employer, too,” says Morgan.
“We suddenly have many more channels that can be used to get the message across to employees, which will improve effectiveness as staff will naturally engage with the information in different ways.”
The inevitability of technology
This could mean total reward statements being delivered online, suggests White, and even the use of apps, so that polices can be viewed from a smart phone or tablet.
“Insurers are also making the value add-ons they offer available through means other than paper or phone,” he says. “For instance, accessing general health information is readily available through online solutions and we will increasingly see health-related apps.”
Technology can also enable providers and consultants to tailor products and communications to individuals or particular groups of employees.
Central to this is the need for detailed information around how benefits are used. This can then be used to deliver messages to the appropriate segment of the workforce, says Mark Witte, principal of Aon Employee Benefits.
“The blanket approach of providing fixed, static benefits supported by a single message will no longer drive the very best outcome for an employer or their staff, especially where a workforce is large or diversified,” he warns.
“In an era where there will be a continued acceleration of the shift in responsibility away from state to employer and on to employee, an approach of targeted benefits provision and education feels very fitting.”
In the future, things could evolve even further, using data gleaned from employees to influence policies and prices.
“Technology is key for achieving efficiency,” says Moxham. “While this could be much further down the line, ultimately, group risk providers could use the aggregated data from wearable devices to influence premiums.”