Group life insurance is combined cover for groups of people, usually members of a superannuation fund or employees of a large company. Essentially, it's collective insurance cover for large numbers of people who are already associated in some way.
Group insurance is designed to reduce the individual risk to the insurer. It works by spreading the risk across a wide cross-section of people, on the premise that although some people will fall sick or suffer an injury, others will never need to make a claim.
In most cases the insurance company will not examine or assess each person individually under a group insurance policy. Instead the premiums tend to be divided by broad categories of people within the group. For example, the amount you pay could be based on your age and employment class, rather than your health or medical history. Group insurance can therefore offer you an opportunity to buy life insurance even if your personal circumstances might make it hard to arrange affordable individual cover.
Group insurance is typically cheaper than retail or direct insurance, which makes it an attractive option for many people – but it's important to consider the best outcome for your individual circumstances. There can be a number of limitations to group insurance:
- Group cover is often limited or capped at a certain level, which may make it unsuitable for you. For example, the amount you could claim under income protection might not be enough to meet your financial obligations.
- Group insurance will often include a number of broad claim exclusions or definitions, which may mean you are unable to claim when you need to. Group insurance can provide a false sense of security, where you may assume you have cover for a particular illness or event, when you may not.
Offering group insurance cover can be a fantastic value-add benefit to your employees. It can be an important factor in employee retention and attracting new talent.
Many large employers choose to offer their employees group cover through a simple payroll tax deduction, which provides the employees with cheap protection and at the same time discharges a level of ‘pastoral care' for the employer. For example, through a group salary continuance scheme, you could protect the welfare of your valued employees by ensuring that they are not left without income if they are unable to work due to sickness or injury.
There can be substantial differences between the type and level of group cover offered by the various underwriters in the market. Some group insurance policies, especially ones which are not specifically designed for the purpose, can have a number of limitations which could disadvantage your employees, so it's important to seek independent advice before negotiating cover and premium rates.
Our life insurance specialists can answer all your questions about the group cover products on offer and help you understand and compare your options.