Group life insurance: Staff deaths could put pressure on your bottom line

A once vibrant young company that was profitable and breathing life, eventually started to have challenges in her bottom-line after it paid out a huge amount of money on staff death benefits when its bus got involved in a major crash killing 10-employees.

Today the company is managing to keep operations going having spent major part of its working capital on staff compensation, so would be relying on bank loan to keep pace with its five-years growth plan, which has run for only two years.

The company, which had ignored complying with a provision in the Pension Reform Act 2014, on group life insurance, has regretted not transferring the risk it carried to insurance professionals, whom it is their responsibility to pay death benefits (claims) when they arise.

Though, a senior executive in the company’s human resources department claimed the organisation was complying with the provision on group life insurance before it stopped remittances of premium a few months back before the incident occurred.

“We have notified our insurance company of the development but they told us we did not qualify for compensation as our policy hadelapsedbefore the incident and so we cannot be indemnified”.

As an employer having at least three people or more in your employment as provided in the Pension Reform Act 2014, it becomes an obligation under the law that you must get a group life insurance for your staff, otherwise you would be carrying the burden to pay such compensation from the company’s purse, should death of staff occur or worse still if there is mass death may be as result of accident.

The Act stipulates that every employer, to which this applies, must maintain a 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 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.

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.

Given the importance of complying with this policy, employers are expected to pay their premium before commencement of the cover, as there is a law guiding payment of premium and effective death of cover.

What this implies is that “No Premium No Cover’, meaning that the payment of premium is a precondition for policy to be effective and where there is no premium it’s assumed that there is no cover in effect.

This is a provision of section 50 (1) of the insurance Act 2003, which states that the receipt of an insurance premium shall be a condition precedent to a valid contract of insurance and there shall be no cover in respect of the insurance risk unless the premium is paid in advance.”

The whole idea in promoting the policy is that insurance companies having received premium from the insured as and when due have the obligation to pay claims when it arises without excuses.

While this policy does not only give the insurance companies the opportunity to build capacity by investing premiums on time and generating good returns that would enable them pay future claims when they arise, it becomes a moral burden not to pay the consumer when there is a loss

Here again, the consumer’s right to ask for claims becomes further enhanced having paid premium to purchase cover. Having taken insurance for staff, 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 employer 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.