Employee benefits: a powerful business differentiator

While consumers generally only think of insurance when they need it, in the current economic climate, employees from large corporates to small-to-medium enterprises (SMEs) are increasingly ranking high on their list of importance the financial security that comprehensive employee benefit schemes offer.

By offering benefits that include medical aid and wellness schemes, retirement annuities and, increasingly, group risk cover that includes lump-sum critical illness and disability cover, and income protection, companies are not only able to meet this demand, but are also finding it is a powerful tool to attract and retain key employees, most of whom now understand the inherent benefits of these perks.

Comprehensive group risk cover can, for instance, ensure that should an employee be unable to work due to injury, most commonly caused by car accidents, or illness, the most prevalent of which is cancer, they continue to receive an income through an income protection plan, to sustain their standard of living.

This could be in addition to receiving a once-off lump-sum disability or critical illness payment that could assist with any other financial commitments or to cover additional medical treatment or medication, should there be a shortfall in their medical aid.

While both income protection and lump-sum disability would both require a waiting period before the employee receives the benefit, and specific definitions of impairment would have to be met for the insurer to pay out, they are distinctly different products. Where a disability claim is an upfront, lump-sum payment, in the case of income protection, there would be an ongoing monthly benefit received to replace the employee's monthly after-tax salary.

In this way, income protection is generally a larger benefit as it is paid over a longer period, which means that premiums are often higher. These monthly payments would continue for as long as the employee is unable to earn an income due to an impairment that meets the insurer's definition, or for a predetermined period in the case of a temporary income disability plan. If the employee recovers and is able to return to work, then the disability income benefit would end. The employee could, however, make additional claims should there be another instance of impairment or illness.

Understanding these parameters is important, particularly at the group scheme inception stage. Employers have a duty to clearly communicate the specifics of the group risk cover options that are being selected and that employees will be entitled to. Selections in this regard are often dictated by affordability, which means companies with large work forces of lower income earners will structure their group risk offering differently to companies with predominantly higher earners, and income protection is usually a significant contributor to premiums. As such, a temporary income protection product is often preferred in terms of affordability, but in so doing, the financial implications to staff of this choice need to be taken into account.

From a group risk perspective, there will be one benefit definition that applies to everyone as individualisation costs more. However, there may be occupations or positions that are riskier from an insurance perspective than others within a company, which would need to be rated to ensure everyone gets the right amount of cover, at the right price. In this regard, the help of a qualified and competent financial planner can be invaluable.

Not only can they perform a financial needs analysis for staff to determine if additional individual gap cover may be required to supplement the group cover offered by the company, but their knowledge of the various products on offer from the numerous providers is essential at inception stage to ensure a good fit for the company and that their employees receive the most relevant and affordable cover.

Moreover, because disability and critical illness claims, be they for income protection or lump-sum disability, are not as clear-cut as death claims, it is beneficial to know which providers pay claims based on the relevant medical info and their ability to assess claims against predetermined definitions. This ensures there are seldom any surprises should an employee need to access the financial support provided by this form of insurance at a time when they need it most.