Risk Benefits at work
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 risk benefits that may form part of your employment contract. Karen Bongers, Product Actuary at Sanlam, says that people who receive risk benefits as part of their remuneration package should critically analyse their cover to determine whether they are adequately insured under the employer’s scheme.
Your cover from work may not cover you as much as you think
Even if you are fortunate enough to receive group benefits (which means benefits from your employer), it 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 although group benefits add significant value, it’s concerning when people assume that their risk needs are fully covered if they have group benefits.
“The group risk benefits packages offered by employers typically include life and disability insurance, the latter being in the form of a lump sum and/or income protection, potentially also with some critical illness cover options. The amount paid out for lump sum benefits (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
If you’re an employee, Bongers suggests that you ask your HR department the following 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 benefits, 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 you would have retired. 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 impacted. 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 insurance you have remaining on another, for example, a claim on an accelerated disability benefit will reduce the amount of life insurance cover.
3. Under what circumstances may I no longer be eligible for certain benefits, like life insurance? 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 my beneficiaries? Many employees neglect to name the beneficiaries of their risk benefits – these are the people who will benefit in the tragic event that you pass away. This may result in a potentially lengthy legal process upon your death, 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, think your beneficiaries will receive 12 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 to exist, or can you convert it to an individual risk insurance package? Is there a time frame within which this needs to take place?
Read the fine print
Study the terms and conditions of the particular group risk policy. Are there waiting periods and possible exclusions? And what are the definitions of each risk benefit? For instance, when it comes to disability cover, many people don’t pay attention to definitions (permanent or temporary) and they usually think that they will receive a pay-out in the event of any impairment. However, this may not be the case if they only have permanent disability cover. For income disability products the definitions are equally important as every impairment will not necessarily preclude you from working and the claim may therefore not be admitted as a disability.
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, in fact, critical if you want to ensure that you have sufficient benefits in place to protect your needs and those of your family. “Armed with the information you have received from your company’s HR department, a financial planner will be able to conduct a comprehensive needs analysis and provide you with a holistic picture in terms of the current and future financial requirements for both you and your family,” concludes Bongers.