Group life insurance compulsory for employees, ask for your right

Pension Reform Act 2004, makes group life insurance compulsory for all employees covered under the scheme. It is a scheme that can be likened to a death-in-service policy, designed to pay a benefit called the sum assured to the next of kin or dependants of an employee who dies in active service. Specifically, this Act affects employers in the public and private sector having more than five employees.

Section 9 (3) of the Pension Reform Act 2004 stipulates that every employer, to which the Act applies, must maintain Life Insurance Policy in favour of the employee for a minimum of three times the annual total emolument of the employee. Under the policy, total annual emolument is defined as the basic salary, transport and housing allowances and shall not include bonuses, overtime, directors’ fees or other fluctuating emoluments.

According to the guidelines for life insurance policy for employees jointly issued by the National Insurance Commission (NAICOM) and the National Pension Commission (PenCom), the employer is required to fully bear all costs in relation to procurement of this policy, and this shall be in addition to the contributions to be made by the employer to each employee’s Retirement Savings Account.

Policy coverage

The policy provides cover to the insured against death and the insurance cover is mandatory for all employees as long as they are in employment. This means that the policy provides for the payment of the sum assured in the event of the death of a member of the scheme from any cause, natural and accidental.

Similarly, the policy also provides for the payment of the sum assured for those in common employment in the event that an insured person disappears and is not seen for a period of 12 months and there is sufficient evidence to assume that the member is dead.

However, the person receiving the sum will sign an undertaking to refund it if the missing person is subsequently found to be living. The insurance coverage is for 12 months, from January through December, and shall be renewable at the end of each coverage year. The premium payable on the policy shall be pro-rated as applicable where an employee joins the scheme in the course of the year.

A free cover limit is often set at N5 million by insurers and any staff with sum assured above this amount will need to undergo special medical examination.

Where an employee leaves the service of the employer before the expiration of 12 months, the premium paid relating to the unexpired period, shall be returned/set aside to the credit of the employer.

Documentation requirements

Each employer is required to obtain an insurance certificate from the insurance company as an evidence of having arranged the insurance contract.

Such certificate is expected to be accompanied by a schedule which shall indicate amongst other things, the period of coverage, the number and details of staff at inception/ renewal date, their total emoluments, the benefit payable and the annual premium/date of full payment.

The insurance certificate is usually issued to employers by the insurer within a month from the policy inception/renewal date.

Employers are also mandated to display a copy of the insurance certificate in a conspicuous place within the premises, for the information of the employees, as evidence of having taken such policies.

Besides, the employers is required to send a copy of the insurance certificate with the schedule of benefits to the National Pension Commission, and the Pension Fund Administrators (PFAs) where the employees maintain their Retirement Savings Accounts (RSAs), not later than 31st March every year.

Employers are required to commence renewal negotiations in writing, within two months to the expiration of the current insurance coverage. Such negotiation must be concluded before the last day of the current cover.

Full payment of the insurance premium shall be made, at the latest, on the first day of insurance cover.

Where an employer fails to effect full payment of premium at the stipulated time, the insurer is expected to report such failure to the National Pension Commission within 14 days of non receipt of premium.

Death of an employee

Where an employee dies, the employer is required to immediately commence death benefit claim on behalf of the deceased. The employer shall notify employee’s PFA and PenCom of the employee’s death stating the claim amount receivable. Thereafter, the employee’s PFA shall validate claim amount and where discrepancies arise, this must be resolved with the employer.

Missing employee

Where an employee is missing, the employer shall report this immediately to the employee’s PFA, insurer and PenCom.

Then, the Board of inquiry established by the National Pension Commission shall stipulate the documentary evidence required from employers to process missing person claims. This includes the Police Report, Employee’s passport photograph, newspaper publication of the missing employee, a letter from employer declaring him missing and any other document as may be required from time to time.

The documentary evidence required by the Board of Inquiry set up by the National Pension Commission is expected to be provided within 14 working days after the period of one year, from the day the employee was declared missing.

The Board of Inquiry shall, also within 30 working days of receipt of complete evidence required for its deliberations, communicate its findings to the employer, insurer and the National Pension Commission, for appropriate action to be taken.