Why you need to be alive to changes in your group life cover

Laura du Preez | 25 November 2022

Laura du Preez has been writing about personal finance topics for more than 20 years, including eight years as personal finance editor for two leading media houses.

If you are an employee who enjoys group life cover, you need to be aware of what is happening to your benefits as there have recently been significant premium increases - driven by higher-than-expected pandemic deaths.

If your group life cover is provided through your retirement fund, the higher premiums may have reduced the savings going into your fund.

Alternatively, your trustees may have tried to minimise the premium increases by reducing your life and disability benefits.

Lower benefits could mean you could find yourself with too little disability cover, and your family with too little life cover, should you become disabled or die.

At the recent annual Actuarial Society of South Africa (ASSA) convention in Cape Town, increases in group life premiums of 20% to 40% were highlighted.

When group life benefits are provided through your retirement fund, a portion of your employer’s contribution to the fund is typically used to pay for group life cover.

Read more: What is group life cover?

Who pays for employees' group life and disability benefits? and

What does it mean if my group scheme is approved or unapproved?

For example, if your employer is contributing 12% of your salary to your fund, but of that, 1.6% is used to pay for group life benefits, this leaves only 10.4% to be contributed to your fund.

The latest Sanlam Benchmark survey shows 1.6% of salary is the average premium for group life, but cover could cost as much as three or four percent of your salary, especially if you work in high-risk industries such as mining or construction.

Small change with a big impact

Large increases in group life premiums may result in only a small increase in the percentage of your employer’s contribution used for group life, but if the increase means reduced retirement contributions, the impact on your retirement savings could be large over time.

Many employees don’t realise they may be left disappointed at retirement because group life and contributions are bundled together, Linda Kleynscheldt, senior actuary Hollard Group Risk, says.  

Assume, for example, you contribute 7.5% of your salary and your employer matches that. If 1% of the employer’s contribution pays for group life cover, it means that your employer is only paying 6.5% of your salary into your retirement fund.

If the cost of that group life increases from 1% to 1.5%, which doesn’t sound like much, your employer is now only contributing 6% to your retirement fund. This means you are saving 7.7% less for retirement every month, Kleynscheldt says.

Thembi Mavuso, a senior specialist consultant at Mentenova Consultants and Actuaries, says you may know your employer is contributing R1 000 for you, but you may not be aware that R400 is used for group life premiums and only R600 is paid to your retirement fund. This is why you need to take note of how much your group life costs and what this means for your retirement savings, and you need to consider what is important to you, she says.

Deaths slow but claims remain higher

Kleynscheldt and Mavuso were part of an ASSA convention panel that discussed the impact of the Covid pandemic on group life cover and whether premiums would return to pre-Covid levels.

Kleynscheldt told the convention that blanket loadings of 30% to 40% were an initial knee-jerk reaction to the high number of deaths at the peak of the pandemic. Deaths have greatly reduced since then, but the risks are not going back to pre-Covid levels, she says.

Mavuso said premiums are not coming down as much as the earlier increases.

Peace Mbhazima, head of death claims and people matters at Liberty, said insurers are facing more claims for more advanced illnesses such as cancer. During the lockdowns people skipped annual check-ups, reducing early detection of illnesses.

Insurers have not yet seen the anticipated tsunami of mental health claims, but Mbhazima said he did not think two years was long enough to measure the full impact of the pandemic on claims.

In addition to the high claims, actuaries highlighted the uncertainty about future pandemics and how insurers need to set aside reserves for possible future spikes in claims. This also has an impact on the price your retirement fund or employer pays for group life benefits.

Managing costs

Currently insurers are trying to manage the volatility in premiums by adjusting the benefits offered, so that employees can keep a valuable base level of affordable cover, Kleynscheldt says.

Sanlam’s Benchmark survey notes that 31% of stand-alone funds, and 21% of umbrella funds have looked at ways to limit group life premium increases which are reaching a point where the insurance is becoming unaffordable.

Hollard has tried to keep premiums down through claims management and stricter underwriting, Kleynscheldt says.

Employees should consider how they can reduce their risk and hence their premiums – for example, if they all get vaccinated or belong to a wellness programme, she says.

Mavuso said some schemes are reconsidering what qualifies as a disability, or introducing flexibility to allow members to choose a balance between group life premiums and contributions to a retirement fund.

Read more: When will a disability policy pay out? 

Group life benefits may decrease as you age and need less cover for disability or child support. For example, a benefit of three times your annual salary when you are under the age of 40 may drop to 2.5 times for employees aged 40 to 49 and to two times for those aged 50 to 59.

Free cover

Members on group life schemes enjoy free cover – cover for which members do not have to answer questions about their health or have any medical tests.

Some schemes cap or limit the free cover and underwrite cover above the limit to manage the risks an insurer faces and the premiums, Kleynscheldt said.

Employee apathy

There is a lot of apathy among retirement fund members who should take an active interest in their retirement savings, Mavuso said.

Members should engage trustees about how they want what typically amounts to 15% of their salary package to be allocated between group life cover and retirement fund contributions, she said.

Employees can:

  • Ask employers to contribute higher amounts;
  • Ask trustees to check for cheaper premiums from other insurers;
  • Consider scaling back if life, disability, severe illness and funeral cover are offered;
  • Ask for benefits to be reduced so that retirement fund contributions can be maximised.

These changes, should not however, happen without all the members understanding the implications and agreeing to them, she adds.

Check if your cover is appropriate, especially if benefits reduce, or reduce at higher ages, and you had children later in life or remarried. Read more: How much life cover do I need? And How much lump sum disability cover do I need?