It’s important to know the risk benefits your company provides

If you are a full-time employee and contributing to a retirement fund, you are likely to be covered for death and disability under a group risk scheme for the company’s employees. But is the cover enough for your needs?

WHETHER you are starting a new job or have been at your place of work for years, it’s important to pay attention to the group risk benefits that may form part of your employment package.

Karen Bongers, product actuary at Sanlam, says that employees who receive group risk benefits should critically analyse their cover to determine whether they are adequately insured.

Even if you are fortunate enough to receive group benefits, they may not be sufficient to provide adequate financial protection for you and your family’s needs in the event of death, disability or critical illness. Bongers says that group benefits add significant value, but it’s concerning when people assume that their risk needs are fully covered by such benefits.

“The group risk benefits packages offered by employers typically include life and disability insurance, the latter being in the form of lump sum cover and/ or income protection, potentially also with some critical illness cover options. The amount paid out for a lump-sum benefit (be it for death, disability or critical illness) is usually a multiple of your annual salary.

There may, however, be a large gap between the amount your family will receive and what your dependants will need, and you may need to consider topping up your cover with individual risk insurance,” she explains.

SIX QUESTIONS TO ASK YOUR HR DEPARTMENT

Bongers suggests that you ask your HR department the following six questions:

1. What benefits am I covered for? You should also know the amounts for which you are covered and, in the case of income protection, for what period of time. For example, some income protection packages will pay benefits only for a specified maximum period of time, whereas others may pay until your retirement date. In all cases, the income benefits will cease on recovery or death.

2. When is my cover likely to change? As you get older, the amount to be paid out may decrease, so your cover may be affected. Conversely, particular life events (for example, the birth of a child) may qualify you for enhanced benefits. Certain benefits may be offered as “accelerated benefits”, which means that a claim for one benefit may decrease the cover you have remaining on another – for example, a claim on an accelerated disability benefit will reduce the amount of life insurance cover you have.

3. Under what circumstances may I no longer be eligible for certain benefits? In some instances, if you claim for disability, you may no longer have life insurance, or you may need to continue paying premiums to ensure you have cover.

4. How do I nominate beneficiaries? Many employees neglect to name the beneficiaries of their risk benefits – these are the people who will benefit if you die in service. This may result in a potentially lengthy legal process, leaving your dependants out of pocket or even destitute until your estate is wound up.

5. What are the tax implications of my group risk benefits package? You may, for instance, be under the impression that your beneficiaries will receive four times your annual salary if something happens to you, but various forms of tax may reduce this amount considerably.

6. How flexible is the company package? What happens if you are retrenched, or if you resign or retire? Does your cover cease, or can you convert it to an individual risk insurance package? Is there a time frame?

READ THE FINE PRINT

Study the terms and conditions of your group risk policy. Are there waiting periods and possible exclusions? And what are the definitions of each risk benefit?

“When it comes to lump-sum disability cover, many people don’t pay attention to definitions and they often think they will receive a payout in the event of any impairment.

However, this may not be the case if they only have permanent disability cover.

For income protection, the definitions are equally important, as an impairment will not necessarily preclude you from working and the claim may, therefore, not be admitted as a disability,” Bongers says.

REVIEW YOUR COVER OFTEN

Bongers says it’s advisable to review your risk cover whenever a major life event occurs, such as marriage or the birth of a child. “To keep it top of mind, however, monitor your benefits at least once a year. In this way you will ensure that the benefits remain up to date and continue to meet the needs of those who depend on you.”

She says a regular conversation with a financial planner is critical if you want to ensure that you have sufficient benefits in place to protect your needs and those of your family.