Many employers offer various forms of insurance to employees as part of their overall remuneration package. Although it is an optional perk to be providing, it is very popular amongst both employers and employees. When considering offering insurance coverage to staff within a business, there are many different considerations such as who will be covered and what they will be covered for. Once this has been determined, you will need to ensure that the plan is properly managed with a central point of contact for all queries relating to the coverage.
What types of insurance can employers provide?
There are a number of insurance products that employers can provide to their employees, including health insurance, life insurance and disability insurance. Employers may also provide other types of insurance, such as home and contents insurance, to protect their employees in the event of an accident or injury.
Why provide insurance to employees?
There are many reasons why employers might choose to provide insurance to their employees. By offering insurance, employers can attract and retain the best talent as well as improve employee productivity. Insurance can also help employees cope with unexpected financial costs, such as those related to illness or injury. Insurance is often costly and hard to access (due to health reasons), with group life insurance and income protection often offering a highly valued level of protection for staff.
In addition to the benefits being highly value by staff, providing a group income protection policy can provide a quasi form of extended sick leave to staff. This can provide staff with an added layer of protection to the legislated sick leave they are provided with.
How is insurance typically offered to employees?
Insurance is typically offered to employees through a group insurance plan. Group insurance plans are usually offered by employers to their employees at a reduced rate. This is because insurance companies generally offer group discounts to employers who purchase insurance for their employees.
Employers typically pay the premiums for group insurance plans, although some plans may require employees to contribute to the cost of the premiums. Group insurance plans may be offered to all employees of a company, or they may be offered to only certain groups of employees, such as those who work in hazardous occupations.
Group insurance plans can be provided through superannuation or directly through the business. There are important considerations for both structures, tax and otherwise, that need to be explored when receiving advice on this.
Who should be covered?
Group insurance plans often require that all permanent staff members be covered under the plan. This is often because group insurance plans do not require members to provide detailed health information and by mandating that all members be covered, it mitigates anti-selection risk for the insurer.
How much insurance should employees have?
Group insurance plans will typically provide members with a level of insurance that is tied to their income. For Life and Total and Permanent Disability insurance we often see employers providing a fixed multiple of 2-6x an employees income as a benefit. For income protection insurance, monthly benefits are often capped and the replacement ratio limited to anywhere from 70-100% of an employees salary.
The amount of insurance that employees should have will depend on their individual needs and circumstances. Employees should consider their own health and lifestyle when determining how much insurance they need. They should also consider the needs of their family, especially if they have dependents.
While offering group life insurance and income protection to employees is an incredibly compelling perk, it is crucial that, as an employer, you understand all of the options you have and have confidence that staff will be covered should they need it.
General Advice Disclaimer
General advice warning: The advice provided is general advice only and in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.