Group life cover should be the one of the most highly valued employee benefits. Helen Swire asks why so few people understand its advantages
Nobody wants to think about what happens when they die – and not just in the existential sense. Post-recession Britain may have an improving economy, but for many their financial concerns are ongoing, not just for themselves, but also their dependents.
In today’s world of work, the responsibility of helping employees throughout their working lives with childcare, healthcare and retirement has been steadily devolved to the employer – so it follows that the final part of the journey might also be catered for in the benefits proposition, in the event that an employee dies in service.
With an ageing workforce, it’s more important than ever that employers provide some assistance should the worst arise.
Life insurance for the workforce – group life cover – is a simple but extremely highly valued solution: it ensures that should a staff member die while still employed, their family and dependents would still be able to cope financially.
Knowing that your loved ones are catered for at an already traumatic – and costly – time can provide huge peace of mind, so should be a very popular benefit.
And yet it seems that few people really understand what is on offer. According to recent research from Zurich, without cover half of employees (47%) rely on savings should the worst happen – and 23% said those savings would only last a month.
So where is the disconnect between the need for the product and the provision?
Noting the need to “bang the drum for proper provision”, Brian Hall, managing director of BHSF Employee Benefits, says: “Group life is one of those key benefits that has faded from the employer’s mind, almost unnoticed. As final salary pension schemes have been closed, benefit arrangements have been rewritten and contracts changed, this important provision has gone missing from the radar.”
However, it’s not just that the benefits as quietly fallen by the wayside. Rather there are misconceptions around two factors actively putting employers off: cost and complexity.
Research from Group Risk Development (GRiD) shows that the majority of employers overestimate the cost of group insurance benefits, with many believing they are prohibitively expensive – while Legal & General has found that the average employer thinks that death-in-service benefits are four times more expensive than they really are.
“Given the relative cost compared to the employee benefit, I’m staggered more employers don’t provide group life as a matter of course,” says MartinuNoone, managing director of Legal & General Workplace Health & Protection.
“If someone of working age dies and they’ve no provision for any funds to go to their family, the result is catastrophic. Particularly when it accounts for less than 1% of payroll, you’d think that it would be an automatic inclusion in the benefits package.”
Katharine Moxham, spokeswoman for GRiD, agrees, saying that in terms of group life provision “you don’t have to provide a Rolls Royce – something is better than nothing”.
However, she adds that part of the employer attitude towards the cost is rooted in a lack of understanding of what can form part of the benefit: for example, daily-use support services for staff and line managers that are often purchased as a separate product.
This can also feed into the complexities around the group life product that many employers find off-putting.
The group life lump sum benefit falls into two categories: excepted schemes, which sit outside the lifetime allowance but have different trustee responsibilities and charges; and registered schemes, which contribute to the lifetime allowance.
The differences present a complicated picture to employers looking for an easy, cheap path.
Canada Life Group’s marketing director, Paul Avis, counsels employers to navigate the benefit with the aid of specific advice: “They definitely need more help: for example, employers should take independent tax and legal advice when considering an excepted scheme.”
However, he adds that the technicalities and terminology are the real barriers: group insurance policy documents as a whole are legal instruments – so it is no real surprise that employers are often bamboozled.
Beyond the legal fine print, and with the right help, there is no complex administrative process for the employer – group life provision can be set up for a workforce in a matter of hours.
Even if you, as an employer, have a group life product in place, the battle is still only half won. If people have to plough their way through the terminology complexities with advisers specialising in the benefit – then what chance does the average person have of understanding group life?
Legal & General’s Noone describes it as “a cultural as well as an educational problem” in the UK that leads to a lack of value attributed to life insurance – with people setting finances aside for expenses such as a monthly Sky subscription but not health insurance.
Meanwhile, according to GRiD, only 16% of employers who have put insurance products in place for their staff regularly communicate about them. So the barriers to employee understanding of group life are two-fold: first, they don’t necessarily even know that they have the product and secondly, if they do, they may well not understand its value.
“It’s down to employer communications – or lack of,” says Moxham. “There’s not a huge amount to understand: these benefits provide financial protection for when the worst happens.
“Some people don’t think they need it – but death and disability can affect anyone, and has a life-changing impact on employees and their families, regardless of age or role in the family. Everybody needs a way to safeguard their financial position.”
In effect it should be a simple message for employers to communicate: if your family loses your income, how well would they survive?
At a time when they are already dealing with their bereavement, will they also manage to cover living costs and funeral costs, or will it be a struggle?
“We all come to work because we need our income to live,” says Moxham. “If an employee loses that income for any reason then there may well be a mismatch between what will happen and what they think will happen. They need a plan in place for that scenario.”
Building the benefit
While there is no obligation for an employer to communicate about group life insurance, it’s clear that without good comms, employees are missing out. Canada Life’s Avis advises employers to keeping communicating with their staff about what works for them and what their circumstances and needs are.
Advisers and providers are now also trying to innovate the product: whether through add-ons such as bereavement and probate lines for survivors, through attaching the cost to that of pensions auto-enrolment to make it a benefit for the whole workforce, or through tying it into pay rises.
The result of this more holistic view towards group life in the overall benefits package can only serve to normalise the benefit – and protect more employees should the worst happen.