3 Common Gaps with Group Insurance Cover
Overview
Group cover usually consists of health and risk benefits including life insurance.
This is offered by an employer or organisation to its workers or members. It is usually fairly inexpensive, or packaged as one of the ‘free’ employee benefits, and is pretty common nationwide.
Group life often has a relatively low coverage amount and is offered as a piece of a larger employer or membership benefit package.
A benefit of this type of cover for clients who have pre-existing medical conditions is that the members of a group policy do not need to submit to a medical examination and are not subject to individual underwriting.
Financial advisers need to understand what group cover benefits their clients might have in place so that they can plug any cover gaps, or make sure the client is not going to be over-insured and waste funds (if cover is doubled up).
Whilst Employee Group Policies can be very beneficial, there are common gaps advisers should be aware of, in order to advise corporate clients, or help top-up cover with existing clients.
1. Does your client have adequate Disability Cover?
The most common challenge we have seen with group insurance in providing sufficient disability cover:
Income Protection that only pays out after 3 or 6 months: In order to make the overall premiums more cost effective, some group cover policies have extremely long waiting periods that would only cover the client well after their sick leave is used up (or they have had to leave the organisation). This places significant risks to your client’s income.
What you can suggest: Discuss options such as a 3 or 6 month term income protection policy that could kick in from as early as 7 days. This will not only protect their income for the interim period, but it will also dramatically increase their likelihood of claiming and using the policy.
Permanent Disability Coverage: Often, group insurance may not provide adequate coverage for permanent disabilities, leaving individuals financially vulnerable in the long term. For example, if your client had a permanent disability and would need R15M to see him and his family through until his retirement, but his cover is only up to R5M, he would have a R10M shortfall and be severely at risk of financial catastrophe.
What you can suggest: You can calculate the shortfall and make sure that the difference is topped up. Be sure to reduce the cover amounts every year as the need / time period decreases.
Cover Amounts: Seldomly do the amounts provided by group insurance align with your client’s actual financial needs in the event of temporary or long-term disability.
What you can suggest: You can calculate the shortfall and make sure that the difference is topped up. Be sure to reduce the cover amounts every year as the need / time period decreases.
2. Are there Affordable and Practical Continuation Options?
There are often a lack of continuation options in group insurance plans, and sometimes the options are there but the option isn’t given to the employee (your client) before the plan is cancelled.
Portability and Continuation: You can explain to your client that group insurance is usually tied to employment, and coverage may be lost during job transitions or changes in employment status. If the group cover is vital to their financial plan, they must ensure to continue the policy after their resignation.
What you can suggest to corporate and individual clients: Recommend assessing the availability of continuation options and considering alternatives to avoid gaps in coverage.
3. Quality Critical Illness Cover
There are typically limitations of critical illness coverage in group insurance plans:
Standardised Coverage: Group plans often offer standardised critical illness coverage, which may not cater to specific health conditions or preferences.
Coverage Scope: Group plans may have limited coverage scope, including exclusions or restrictions on certain illnesses which could pose a risk to your client’s finances and income earning abilities if that excluded condition affects them.
What you can suggest : Advise considering individual critical illness policies for comprehensive and customisable coverage that suits your client’s personal needs. Consider policies that supplement what they have on their group cover schemes, as well as policies that don’t aggregate (limit pay-outs) against other policies.
There are some key gaps identified in group insurance cover in South Africa: (the lack of) adequate disability cover, sometimes unaffordable and impractical continuation options, and the quality or limitations when it comes to critical illness cover.
We encourage advisers to assess their clients’ group insurance policies and consider supplemental coverage or individual policies to fill gaps.
When it comes to corporate clients or clients that have their own employees, propose effective solutions that could improve or replace their current group policies.
Chat to ICON for more ideas around how you can build better solutions for your clients.
Email: quotes@icononline.co.za
